Feigenbaum Law

Federal Budget 2019: How Will it Affect Taxes?

Corporate Tax Planning
Personal Tax Planning
March 22, 2019

The Liberal government’s 2019 budget was tabled on March 19, 2019. In short, the budget seeks to support and build Canada’s middle class through:

  • Making homeownership more affordable for first-time buyers;
  • Helping workers gain new skills;
  • Preparing young Canadian for good jobs;
  • Helping Canadians with the cost of prescription drugs;
  • Supporting low-income Canadian seniors who choose to remain in the workforce;
  • Giving all Canadians access to high-speed internet;
  • Lowering the cost of energy;
  • Advancing reconciliation with Indigenous Peoples; and
  • Lowering taxes.

It is this last point which is likely of most interest to readers of this blog, and the one which we will focus on for this week.

Corporate Tax

Some select matters of particular importance in the corporate tax realm are explored below.

Corporate Tax Rates

No changes were proposed to existing corporate income tax rates (which remain at 15% for the general corporate tax rate and 10% for the small business rate).

Zero Emission Vehicles

As part of a continued commitment to a cleaner environment, the federal government proposed a temporary enhanced first-year capital cost allowance (CCA) rate for businesses purchasing zero-emission vehicles. Businesses can fully write off any zero-emission vehicle purchased between March 19, 2019 and January 1, 2024.

Vehicles that are eligible include:

  • Electric battery;
  • Plug-in-hybrid (with a minimum battery capacity of 15 kWh);
  • Hydrogen fuel cells

Two new CCA classes will be created:

  • Class 54 (zero emission vehicles that would otherwise fall under class 10 or 10.1- passenger vehicles)- the eligible limit for write-off is $55,000 (plus sales tax), a threshold that will be reviewed annually as the market changes);
  • Class 55 (zero emission vehicles that would otherwise fall under class 16- taxis, short-term rental cars, heavy freight trucks).

Modifications to GST/HST legislation were also proposed which would increase the maximum input tax credit (ITC) claims on the purchase and improvement of zero-emission vehicles.  

A new federal purchase incentive of up to $5,000 for electric battery or hydrogen fuel cell vehicles under $45,000 was also proposed. Any vehicles purchased using this incentive would not qualify for the enhanced CCA rules.

Small Business Deduction- Fishing and Farming

Currently, specified corporate income does not qualify for the small business deduction (the federal corporate income tax rate on active business income up to $500,000 was 9%).

This excluded specified corporate income includes certain amounts earned by a Canadian Controlled Private Corporation (CCPC) from sales to a private corporation where the CCPC, one of its shareholders, or a person who is not at arm’s length from such a shareholder has a direct or indirect interest in the CCPC.

However, a CCPC’s income derived from sales of fishing catches or farming products is excluded from specified corporate income where that income arises from sales to a fishing or farming cooperative corporation.  That income is eligible for the small business deduction. This is effective retroactively to taxation years that begin after March 21, 2016.

Scientific Research and Experimental Development

To date, certain CCPC’s have qualified for an enhanced Scientific Research and Experimental Development (SR & ED) tax incentive program at a rate of 35% (available on up to $3 million of qualifying annual SR & ED expenses. This limit was affected the use of taxable income and taxable capital in the preceding tax year.

The government has proposed an elimination of the use of taxable income in the previous year as a determining factor in a CCPC’s annual expenditure limit. The change is intended to be effective for tax years ending on or after March 19, 2019.

Personal Tax

Some select matters of particular importance in the personal tax realm are explored below.

Home Buyers’ Plan

The government has announced a plan to provide first-time home buyers with greater access to RRSP’s in order to build or purchase a home. The plan includes a proposal to increase the withdrawal limit from $25,000 to $35,000 for 2019 and onwards.

Employee Stock Options

The government has indicated that it intends to limit the use of the current employee stock option tax regime to align with how stock options for employees of large, long-established firms are treated in the U.S. A $200,000 annual cap on employee stock option grants is proposed.

Stock option benefits for start-ups and expanding businesses would not be subject to this proposed limit.

Intergenerational Business Transfers

The budget confirms that the government recognizes that Canadian business owners (including fishermen and farmers) will often be transferring their businesses on to their children. The government has indicated that it will continue to reach out and consult with these groups to develop proposals to facilitate these transfers.

Carrying on Business in a Tax-Free Savings Account

Currently, tax-free savings accounts (TFSA) are taxed at the top personal tax rate on income from a business carried out by the TFSA.

The government has proposed that for 2019 and onwards, the joint and several liability for tax owing on income from carrying on a business in a TFSA will be extended to the TFSA holder (currently, only the trustee of the TFSA, a financial institution, is jointly and severally liable with the TFSA for the tax).

The government has also proposed that the trustee’s liability ought to be limited to the amount of property remaining in the TFSA at the time plus the amount of all distributions on or after the date that the notice of assessment is sent.

As always, we will continue to follow developments in this regard and will blog updates when more information becomes available. In the meantime, if you have questions about how the measures in the new provincial budget will affect your current tax plan contact Feigenbaum Law.  We are leaders in the field of tax law, and offer services to clients in the US, Canada and around the world. Contact us to learn more about how we can help or call us at (905) 695-1269 or toll-free at (877) 275-4792.

Tagged: Budget 2019, corporate tax planning, personal tax planning