On March 22, 2016, Minister of Finance Bill Morneau tabled the highly anticipated 2016 Federal Budget (the “Budget”), the Liberal Government’s first budget, entitled “Growing the Middle Class”.
We are pleased to provide our summary of tax measures contained in the Budget.
The Budget proposed no changes to the general corporate income tax rates or the Goods and Services tax rate. The proposed corporate tax rate changes are focussed on the small business tax rate by deferring the previously proposed rate reductions that were to become effective in future years resulting in the small business tax rate remaining at 10.5% after 2016 and proposing changes to limit access to the small business deduction under certain corporate and partnership structures. The federal corporate tax rate applicable to personal services business income was increased from 28% to 33%.
Other business tax changes of note were the repeal of the eligible capital property regime and replacement of this regime with a new capital cost allowance (“CCA”) class, a proposal to expand CCA classes for clean energy and conservation equipment and the introduction of rules to clarify the tax treatment of emission allowances.
International tax changes continue the Federal Government’s commitment to address base erosion and profit shifting and acting on recommendations of the OECD. The proposed changes include the introduction of country by country reporting for large multi-national enterprises and new measures addressing cross-border surplus stripping.
The Budget proposes no new individual tax rates or tax bracket changes but changes had previously been announced on December 7, 2015 to reduce the income tax rate for the middle tax bracket and introduce a new rate applicable to income in excess of $200,000. A new Canada Child Benefit is proposed to replace the Universal Child Care Benefit and Canada Child Tax Benefit. The family income splitting tax credit and other tax credits are eliminated or being phased out.
A number of targeted changes are proposed to address tax deferral or saving opportunities currently available in respect of certain investment products and life insurance policies.
With respect to charitable sector changes, the Budget unfortunately announced the Federal Government’s decision not to proceed with the capital gains exemption that had been proposed in the 2015 Budget in respect of arm’s length dispositions of real estate or private corporation shares where cash proceeds from the disposition were then donated to charity.
From a fiscal perspective, the Budget projects the 2016 deficit to be $5.4 Billion (compared to a budget surplus of $1.4 Billion that was projected in the 2015 Budget and a $3.0 Billion deficit that was projected in November 2015) with a budget deficit of $29.4 Billion for 2017 to be followed by additional significant deficits for a number of years to follow.
Our summary of the tax highlights contained in the Budget follows.