First Budget Bill Passes, But Without Corporate Class Fund Changes

Bill C-15 Budget Implementation Act, 2016, No. 1 has passed in parliament and has moved on to the Senate for approval.  This Bill implements some, but not all, of the tax measures introduced in the 2016 Federal Budget.

Specifically, this Bill will bring into law the following tax changes:

• the education tax credit and textbook tax credit are eliminated as of 2017,
• the children’s arts tax credit is eliminated for 2017 (and reduced for 2016),
• the child fitness tax credit is eliminated for 2017 (and reduced for 2016),
• the family tax cut credit is eliminated after 2015,
• (the Canada Child tax Benefit and Universal Child Care Benefit are replaced with the new Canada Child Benefit as of July 1, 2016,
• the school supplies tax credit is available for 2016,
• amounts received as rate assistance under the Ontario Electricity Support Program are removed from taxable income for 2016 and subsequent years,
• the small business tax rate will remain at 10.5 % for the 2016 and subsequent taxation years the dividend gross-up factor and dividend tax credit are adjusted accordingly,
• the maximum deduction available under the northern residents deduction is increased for 2016 and subsequent years,
• the mineral exploration tax credit for flow-through share investors is extended for one year,
• the labour-sponsored venture capital corporations tax credit is restored for purchases of shares of provincially registered labour-sponsored venture capital corporations for the 2016 and subsequent taxation years, and
• changes consequential to the introduction of the new 33 % individual tax rate are made.

These additional changes announced in the budget are also included:

• the anti-avoidance rules are amended to prevent the conversion of capital gains into tax-deductible intercorporate dividends,
• certain costs associated with undertaking environmental studies and community consultations as Canadian exploration expenses are quantified,
• profits from the insurance of Canadian risks must remain taxable in Canada,
• the dividend rental arrangement rules will apply where there is a synthetic equity arrangement,
• specific tax rules in respect of the commercialization of the Canadian Wheat Board, including a tax deferral for eligible farmers are added,
• registered charities and registered Canadian amateur athletic associations are permitted to hold limited partnership interests,
• the withholding tax requirements for payments by qualifying non-resident employers will not apply to qualifying non-resident employees,
• the circumstances in which the repeated failure to report income penalty will apply are limited,
• the sharing of taxpayer information within the Canada Revenue Agency to facilitate the collection of certain non-tax debts will be permitted, and
• the sharing of taxpayer information with the Office of the Chief Actuary will be permitted.

Missing among the provisions in the budget are

• elimination of the tax-free transfers of investments between corporate class funds,
• cancellation of the proposed elimination of capital gains tax on donations of real estate and shares of private corporations,
• rule changes for claiming eligible capital expenses, and
• taxation of linked notes.

These changes are expected to be implemented in another Bill.

Additional educational resources include: EverGreen Explanatory Notes and T1 Professional Tax Preparation – Advanced.

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