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By RBC Wealth Management Services Team

On Feb. 27 Bill Morneau delivered the Liberal government's 2018 budget. The budget measures are aimed at tightening perceived loopholes or inequalities in various aspects of the tax system, as well as protecting Canada’s tax base and addressing global tax evasion. See below for highlights on many of the tax measures proposed in the budget.

Personal tax initiatives

Canadian Workers Benefit: Plan to rename the Working Income Tax Benefit (a refundable tax credit) to the Canada Workers Benefit (CWB). The credit aims to supplement the earnings of low-income workers as well as provide incentives. The budget proposes to increase the benefit to 26 percent of each dollar of income earned in excess of $3,000 to a maximum of $1,355 for single individuals with no dependents and $2,335 for families. This will apply starting in 2019 and will be subject to indexation in further years. The credit will be income tested based on the family net income.

Eligible Medical Expenses: Proposed expansion of the medical expense tax credit to include costs incurred after the 2017 with respect to animals specifically trained to perform tasks for individuals with severe mental impairment.

RDSP extension of qualified individual: Plan to extend the temporary federal measure which allows a qualifying family member to be the plan holder of an individual’s RDSP to the end of 2023 where the capacity of an adult individual to enter into a contract is in doubt.

Trust Reporting: The budget introduces reporting requirements for certain trusts to file an annual T3 return and where applicable, trusts will be required to report: All trustees, beneficiaries of the trust; settlors of the trust; and each person who has an ability to exert control over the trustees decisions regarding trust income or capital. Effective for 2021 and subsequent tax years, with certain exceptions.

Enhancing the Wage Earner Protector Program:  Proposal to increase the maximum payment under the Wage Earner Protection Program from four to seven weeks of Employment Insurance (EI) insurable earnings & changes to make eligibility for the program more equitable for workers who are owed wages, vacation, severance or termination pay when their employer files for bankruptcy or enters receivership.

New Employment Insurance Benefit: To support greater gender equality in the home and in the workplace, the budget introduced a new EI Parental Sharing Benefit, expected to be available in June 2019 for eligible two-parent families, to take following the arrival of their child. Proposed benefit will provide additional weeks of “use it or lose it” EI parental benefits.

Deductibility of Employee Contributions to the Enhanced Portion of the Quebec Pension Plan:  Proposal to provide a deduction for employee contributions (as well as the “employee” share of contributions made by self-employed persons) to the enhanced portion of the QPP for the 2019 and subsequent taxation years.

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Child Benefits: Proposes to provide legislative authority for the Government to share taxpayer information related to the Canada Child Benefit with the provinces and territories, as of July 1, 2018, for administering social assistance payment regimes. The budget plan also proposes that foreign-born status Indians residing legally in Canada who are neither Canadian citizens nor permanent residents are made retroactively eligible for the previous Canada Child Tax Benefit, the National Child Benefit supplement and the Universal Child Care Benefit, where all other eligibility requirements are met. This amendment applies from the 2005 taxation year to June 30, 2016.

Mineral Exploration Credit: Proposal to extend eligibility for the mineral exploration tax credit for one year, to flow-through share agreements entered into or before March 31, 2019.

On the business tax front 

Passive income: The government expanded on measures to limit the tax deferral advantage associated with earning passive investment income inside private corporations. These include new measures with respect to reducing the small business limit as well as a new regime with respect to refundability of taxes on investment income.

Health and Welfare Trusts: To simplify the administration and provide certainty for taxpayers, the budget proposes the use of only one set of rules, those being the Employee Life and Health Trust rules, as set out in the act after December 31, 2020. Transitional rules will be added following a consultation period.

At-Risk Rules for Tiered Partnerships: Proposal to clarify the at-risk rules and ensure that they apply appropriately at each level of a tiered partnership structure, effective in respect of taxation years ending after or after February 27, 2018.

On the international tax front

Reporting and Reassessments Relating to Foreign Affiliates: Proposals to require the information returns to be filed within six months after the end of the taxpayer’s taxation year starting in taxation years that begin after 2019. As well, to extend the reassessment period for a taxpayer by three years in respect to Foreign Affiliate income beginning taxation years that begin on or after February 27, 2018.

Cross-Border Surplus Stripping Using Partnerships and Trusts: Budget proposes to introduce measures to prevent non-resident taxpayer transactions involving trusts and partnerships that result in the ability to extract tax-free surplus from a Canadian corporation starting on or after February 27, 2018.

Sharing of Information for Criminal Matters: The government will be proposing various legislative amendments to allow for the sharing of information internationally for the investigation, prosecution and suppression of serious criminal offences, both tax-related and non-tax-related. 

For more information on the budget, download the Federal Budget 2018 summary document.

This document has been prepared for use by the RBC Wealth Management member companies, RBC Dominion Securities Inc. (RBC DS)*, RBC Phillips, Hager & North Investment Counsel Inc. (RBC PH&N IC), RBC Global Asset Management Inc. (RBC GAM), Royal Trust Corporation of Canada and The Royal Trust Company (collectively, the “Companies”) and their affiliates, RBC Direct Investing Inc. (RBC DI) *, RBC Wealth Management Financial Services Inc. (RBC WM FS) and Royal Mutual Funds Inc. (RMFI). Each of the Companies, their affiliates and the Royal Bank of Canada are separate corporate entities which are affiliated. *Members-Canadian Investor Protection Fund. “RBC advisor” refers to Private Bankers who are employees of Royal Bank of Canada and mutual fund representatives of RMFI, Investment Counsellors who are employees of RBC PH&N IC, Senior Trust Advisors and Trust Officers who are employees of The Royal Trust Company or Royal Trust Corporation of Canada, or Investment Advisors who are employees of RBC DS. In Quebec, financial planning services are provided by RMFI or RBC WM FS and each is licensed as a financial services firm in that province. In the rest of Canada, financial planning services are available through RMFI, Royal Trust Corporation of Canada, The Royal Trust Company, or RBC DS. Estate & Trust Services are provided by Royal Trust Corporation of Canada and The Royal Trust Company. If specific products or services are not offered by one of the Companies or RMFI, clients may request a referral to another RBC partner. Insurance products are offered through RBC Wealth Management Financial Services Inc., a subsidiary of RBC Dominion Securities Inc. When providing life insurance products in all provinces except Quebec, Investment Advisors are acting as Insurance Representatives of RBC Wealth Management Financial Services Inc. In Quebec, Investment Advisors are acting as Financial Security Advisors of RBC Wealth Management Financial Services Inc. RBC Wealth Management Financial Services Inc. is licensed as a financial services firm in the province of Quebec. The strategies, advice and technical content in this publication are provided for the general guidance and benefit of our clients, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. This publication is not intended as nor does it constitute tax or legal advice. Readers should consult a qualified legal, tax or other professional advisor when planning to implement a strategy. This will ensure that their individual circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This information is not investment advice and should only be used in conjunction with a discussion with your RBC advisor. None of the Companies, RMFI, RBC WM FS, RBC DI, Royal Bank of Canada or any of its affiliates or any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. ® Registered trademarks of Royal Bank of Canada. Used under license. © 2018 Royal Bank of Canada. All rights reserved.