On Wednesday March 22nd 2017, our Canadian finance minister Bill Morneau introduced the 2017 budget. Out of the many changes a few were spared including the personal tax rates, corporate tax rates and capital gains rates.
Innovation Credits the Canadian government would like to provide new financing support in the realm of $1.4 Billion for clean technology firms to grow and expand. Over the next coming months the application process for these programs will be finalized and companies can apply.
Tax Planning using corporations is under review by the Canadian government. Corporations were effectively used to avoid or minimize the tax that corporations and shareholders would pay. The main areas of tax planning within a private corporation being targeted is a) Incoming splitting, b) Passive investments and c) conversion of regular income into capital gains.
CCPC Status stands for Canadian controlled private corporation which carries many benefits. Budget 2017 has proposed changes where the status of the CCPC which is entitled to the small business deduction of $500,000 will have to pass additional tests. Although a tax payer may not having voting control (Common shares) of a corporation but they can still have influence over the directors where such a case can be established the small business deduction will have to be shared amongst the corporations.
Stop loss transactions: Before Budget 2017 a taxpayer could enter into two transactions where the first transaction would trigger a loss prior to the tax year and as such reducing the taxes for the current year. The second transaction would trigger a gain preceding the year-end in which the gain would not be taxed for a whole year. If parliament agrees to eliminating this tax technique than all future transactions will be disallowed and taxed under the new measures.
Accrual basis Accounting: As many of you would know there are two methods of accounting being cash and accrual. The primary difference between the two relates to revenue timing. The Accrual method will calculate the tax owing position based on revenue generated and the cash basis accounting method would calculate the tax based on cash collected. The professions being impacted with the new budget will eliminate the choice of choosing between the methods and force Doctors, Engineers, Lawyers and Accountants to use the accrual basis. A letter is expected clarifying this but it will allow for a 2 year transitional period.
Caregiver credit system: Budget 2017 proposes to simply and streamline the caregiver credits. The infirm dependent credit, caregiver credit and family caregiver tax credit will be phased out and replaced with the new Canada caregiver credit. Where the credits will apply to the families that live or don’t live in the same household.
Medical tax credit: Individuals who incur medical intervention to conceive a child will be eligible for the medical tax credits. Prior to the Budget 2017 these expenses were limited to those who would generally be eligible for medical infertility.
Public Tax credit: This tax credit used by many will be phased out as it hasn't encouraged people to use public transit and reduce green house emissions. It's unfortunate as this was one of the few credits that students and commuters would claim.
Ride sharing: Your Uber will be taxed with the GST/HST taxation and have the same rules applied to taxies to be applied to the ride sharing companies. Basically your Uber will cost you more now but be just as safe as taxis due to the added regulations.
Increased funding for CRA: The budget announced that half a billion dollars will be used to fund the CRA over 5 years in an effort to prevent tax evasion and improve tax compliance. It means we will be having many more auditors being hired and policing tax evaders. Ensure you always report everything to the CRA and always keep your receipts as they can go back by 6 years to audit/review your books.
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- Written by: Jag Bath