March 21, 2019
Canadian Federal Budget 2019 Summary
This 2019 Federal Budget summary reveals that there appears to be little focus on balancing the books.
The Budget was tabled on March 19, 2019, and is the last budget leading up to the federal election expected in October 2019. As anticipated of a pre-election budget, it features numerous spending initiatives with projected annual deficits of $15-$20 billion over the next four years.
Despite calls from the tax community including CPA Canada, there was no commitment to study the Canadian tax system. In addition, there were no significant measures to address Canadian tax competitiveness, particularly in response to the recent US tax reforms.
FEDERAL BUDGET TAX RATES
There were no changes to tax rates. BC’s personal top tax rate of 49.8% continues to be competitive relative to the other provinces, seven of which exceed 50%. The same can be said of BC corporate tax rates of 27%, or 11% for small business, which is on the lower end compared to other Canadian provinces.
PERSONAL TAX MEASURES
These were focused on housing affordability, skills and job training, retirement security, and implementing a national Pharmacare.
The proposed CMHC First-Time Home Buyer Incentive is a shared equity mortgage, funding 5% or 10% of the purchase price that is repayable only when the property is sold. This helps to reduce a first-time home buyer’s insured mortgage balance, with CMHC sharing in the appreciation (or depreciation) on a future sale. These features could discourage the sale of a home.
The CMHC First-Time Home Buyer Incentive will be administered by the CMHC. Although it is not a tax measure per se, questions arise on the peripheral taxation matters which the Budget was silent on. For example, is the Incentive:
A lease inducement
A government incentive
A deemed interest benefit
Or a completely tax-free windfall?
And how would the CMHC share on the taxation on sale? One hopes that more details will be available once the program is released by the CMHC.
Other selected housing measures:
Home Buyer’s Plan – the withdrawal limit will be increased from $25,000 to $35,000.
Real Estate Audits – $50 million will be provided to the CRA over five years to create new real estate audit teams focusing on high-risk regions, particularly in BC and Ontario.
Federal/Provincial Data Sharing – $1 million will be provided to Statistics Canada for a federal data needs assessment, to facilitate streamlining of data sharing and monitoring of Canadian real estate purchases.
Skills and Jobs
Currently, stock options that meet certain are taxed at 50% of the stock option benefit. The budget announces the government’s intent to limit this tax-preferred treatment to high-income individuals employed at large, long-established, mature firms. It proposes an annual $200,000 limit on employee stock option grants (based on the value of the underlying shares), to apply no earlier than when legislative proposals are announced.
Further details are expected this summer and we hope for some clarity around the meaning of “high-income individuals” and “large, long-established, mature firms.”
Other selected measures:
Canada Training Credit – eligible individuals (ages 25 to 64, earning between approximately $10,000 and $150,000 a year) will accumulate a refundable credit of $250 per year to a maximum of $5,000. The refund is available for up to half of the tuition fees paid but will reduce the tuition credit. This credit appears to add a lot of complexity relative to the benefit that can be realized.
Student Loans – interest rates will be lowered, and will be interest-free for the first six months after leaving school.
In response to the concern that people are living longer and may run out of funds in retirement, two new annuities were added to the list of qualified investments for registered plans. One of these is the Advanced Life Deferred Annuity (ALDA), where an individual can invest up to 25% of the value of the plan, subject to a lifetime maximum of $150,000. Annuity payments from an ALDA can be deferred until the year the annuitant turns 85, and the value invested is not included in calculating the minimum annual RRIF withdrawal.
Other retirement measures:
Guaranteed Income Supplement (GIS) – the earnings exemption will be increased.
Canada Pension Plan (CPP) – contributors 70 years or older will be pro-actively enrolled.
Workplace Pensions – increased protection will be available in the event of corporate insolvency.
BUSINESS TAX MEASURES
Investment Incentives For Zero Emission Vehicles – 100% write-off in the year a fully electric, plug-in hybrid or a hydrogen-powered vehicle is put in use
Scientific Research & Experimental Development (SR&ED) – the income threshold for refundable credits will be removed, increasing the credit for more profitable businesses
Support For Canadian Journalism – certain organizations will qualify for tax-exempt status, qualified donee status (allowing donors to claim the donation tax credit), and a refundable tax credit equal to 25% of the wages of eligible newsroom employees. Individuals will have access to a temporary non-refundable tax credit for digital news subscriptions.
Foreign Affiliate Dumping Rules (Aimed at Avoidance of Withholding Tax Through Offshore Investments) – will be expanded to include non-resident individual and trust shareholders, in addition to corporate shareholders.
Tax-Free Savings Accounts (TFSAs) Carrying On A Business – in addition to the TFSA and trustee, the TFSA holder will also be jointly and severally liable for the taxes payable.
No changes were made as had been anticipated by some, to surplus stripping rules and the capital gains exemption. These opportunities continue to be available until at least the next Budget. Please contact a member of the Manning Elliott Tax Team to review whether these opportunities may be available to you.
The above content is believed to be accurate as of the date of posting. Canadian tax laws are complex and are subject to frequent changes. Professional tax advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained herein.