2017 Federal Budget Commentary

On 22 March 2017,  the Federal Government presented its second budget: Building a Strong Middle Class. Here are some brief highlights from our full budget commentary.

Federal Deficit and Debt

The Federal Government’s 2017–18 Budget projects a deficit of $28.5 billion for the period covering April 1, 2017 to March 31, 2018 (“2017-2018”). For clarity, the term deficit represents annual expenses in excess of annual revenue rather than a cumulative amount of debt. The Federal debt at the end of March 31, 2018 is projected to be $665.5 billion.

Instead of planning to eliminate the deficit as previously proposed, the government says it will maintain a net debt-to-GDP ratio of around 31% over the next five years. The government notes that Canada’s net debt-to-GDP ratio is the lowest in the G7 and one-third of the G7 average. By way of comparison, the net debt-to-GDP ratio of the United States and United Kingdom is close to 80% (according to the IMF).

Summary of Tax Changes

The Budget did not change the capital gains rate despite the flurry of rumours and media speculation. The Budget contains no changes to corporate or personal income tax rates or the small business deduction. The government indicated it will release more details on its plans to limit tax-planning strategies later this year.

Personal Tax Highlights

  1. Public Transit Credit

The credit will be eliminated for transit use after June 30, 2017

  1. Canada Caregiver Credit

The existing Caregiver Credit, Infirm Dependant Credit, and Family Caregiver Tax Credit will be replaced with a single new, non-refundable credit, the Canada Caregiver Credit. The new credit does not require that the dependant person live with the caregiver. The credit may be worth up to 15% of $6,883 (in 2017).

  1. Tuition Tax Credit for occupational skills courses

Fees paid to universities or colleges for occupations skills courses will be eligible for the tuition tax credit effective January 1, 2017. The scholarship exemption for bursaries related to such courses will also be available provided all other conditions for the exemption are met.

  1. Disability Tax Credit – Certification by Nurse Practitioners

Nurse practitioners will be able to certify impairments for purposes of the Disability Tax Credit (see Form T2201) for certifications made after March 21, 2017.

GST/HST on Uber and Tax on Alcohol

  1. GST/HST on Ride-sharing services like Uber

Effective July 1, 2017 the definition of taxi business will be amended to ensure that providers of ride-sharing services like Uber are required to register for GST/HST and charge tax on their fares in the same manner as taxi operators.

  1. Tax on Alcohol

Excise duties on alcohol products are proposed to be increased by 2%, effective March 23, 2017, with annual indexing of rates thereafter.

Tax Planning Using Private Corporations

The government is reviewing the use of private corporation tax planning strategies that may reduce the personal tax of high-income earners in a manner considered inappropriate. In particular, the government has identified the following strategies for review:

  • Income sprinkling — causing income that would be taxable to an individual at a high rate of tax to be taxed in the hands of a family member subject to a lower marginal tax rate, commonly achieved through dividends or capital gains
  • Holding of portfolio investments — corporate tax rates on ordinary business income are generally much lower than personal rates; retaining income in a private corporation can therefore facilitate accumulation of a larger pool of funds for investment
  • Conversion of regular income into capital gains — causing income that would normally be paid to the shareholder as salary or dividend to be converted to capital gains, taxed at a significantly lower tax rate

In the coming months, the government will release a paper that will review these issues in detail and provide proposed policy responses.

As the full budget document is a 280 page read, you might prefer Stern Cohen’s condensed budget commentary.  Please click here to view or download the file.