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.
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.
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