March 22 2016

Finance Minister Bill Morneau announced the Liberal’s 2016 Federal Budget plan on March 22, 2016 with promises of supporting Canadian families and a clear focus on the middle class wage earner. Subsequent to significant income tax rate changes implemented in January 2016, the budget provides a framework for larger infrastructure spending with deficits expected to be significant in size over the long term; infrastructure spending is expected to be 11.9 billion over 5 years and $120 billion over 10 years. This spending will be in areas of transit, water, as well as a large commitment to First Nations.

Here are some of the key measures proposed in the 2016 budget:

Clock tower of Parliament Buildings      Measures for low and middle class Canadians
  • Introduction of a tax-free Canada Child Benefit in July 2016 which will replace the current income-tested Canada Child Tax Benefit and the taxable Universal Child Care Benefit. This new benefit will be clawed back for higher income earners.
  • Phase out of existing tax credits for children’s fitness and arts activities effective 2017.
  • Elimination of the family income splitting credit for families with children under age 18 effective immediately.
  • Return of the Old Age Security (OAS) eligibility to age 65.
  • Increase the Guaranteed Income Supplement (GIS) for low income unmarried seniors.
  • Lower premiums for Employment Insurance beginning in 2017 and easier access to benefits in certain regions of Canada.

Corporate and investment tax measures

  • Deferral of previously proposed small business tax rate reductions; the federal tax rate for small business income on the first $500,000 of active income will remain at 10.5%.
  • Changes with respect to the definition of “associated corporations” in regards to the availability of the small business deduction. This may impact professional corporations whose shareholders are partners of partnerships to which the professional corporations provide services.
  • Creation of a new Capital Cost Allowance (CCA) class for eligible capital property to be transitioned over the coming years.
  • Restoration of the Labour Sponsored Venture Capital Corporation tax credit.
  • Prevention of the deferral of capital gains taxes on mutual fund corporations structured as “switch funds”, also reffered to as corporate class funds.
  • Reinforcement of the definition of the life insurance benefit added to the Capital Dividend Account (CDA) for corporately owned life insurance.

The budget further proposes measures to increase resources for the Canada Revenue Agency (CRA) for tax compliance, monitoring and enforcement of the existing tax system. 

Despite lots of speculation in the media lately , the federal budget did not change the capital gains inclusion rate nor the stock option benefit regime. The Tax & Estate Planning group will provide a more detailed analysis of the impact of the above changes to Richardson GMP clients in the coming days.

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