Justin Mastrangelo, partner at BDO Canada LLP

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2018 FEDERAL BUDGET: EQUALITY AND GROWTH

On Feb. 27, Bill Morneau presented his third budget as federal finance minister. The key issues in the 2018 budget for Canadian businesses include:

GENDER EQUALITY

The government has made it a priority to address gender inequality in Canadian society and promoting the economic success of women. The government has indicated that the budget measures have gone through a gender-based analysis with the goal of allocating government resources more equitably and efficiently. It includes measures such as a new Women Entrepreneurship Strategy designed to increase the number of businesses owned by women and an enhanced parental leave Employment Insurance benefit for the second parent.

INNOVATION

There is significant concern in the Canadian business community that the renegotiation of NAFTA and the reduction of U.S. corporate tax rates as part of U.S. tax reform may have a negative impact on Canadian business competiveness. There was very little acknowledgement of these concerns in the budget with the government only indicating that it will monitor the impact of the U.S. tax reforms on Canada. The budget did contain new funding to support innovation in Canada with $2.6 billion to be spent over five years to transform Canada’s innovation programs. No changes were announced to the Scientific Research and Experimental Development tax credit program.

PRIVATE COMPANY TAXATION

The government introduced rules intended to limit the ability to build a passive investment portfolio owned by a private corporation. The rules announced are a significant improvement over the original proposals released in July 2017 and the revised proposals in October 2017. The small business deduction will be reduced by $5 for every $1 of investment income above the new annual $50,000 investment income limit and will be eliminated when annual investment income is $150,000 or higher. 

WHAT’S NEW FOR 2017 PERSONAL TAX

A new taxation year often brings with it tax changes.

Of notable interest, a number of personal tax credits have been eliminated for federal tax purposes starting with the 2017 tax year including:

• The education and textbook tax credits — For 2017 and subsequent taxation years, the federal education and textbook amounts have been eliminated. However, any unused federal tuition, education and textbook amounts from 2016 and previous years can still be carried forward. Note that although some provinces have also eliminated the provincial tuition credit, the federal tuition credit remains available.
• The children’s fitness tax credit and the children’s arts tax credit — The eligible amounts for these credits were reduced by half for 2016, and have been fully eliminated for 2017 and subsequent taxation years.
• The public transit tax credit — This tax credit is eliminated effective July 1, 2017. This means that you can claim the cost of monthly public transit passes or passes of longer duration for travel on public transit for the period of Jan. 1, 2017 to June 30, 2017.

It's important to note that the while these credits may have been eliminated for federal tax purposes, some provinces continue to offer these credits in 2017. Please check the General Income Tax and Benefit Guide for your province, available on the Canada Revenue Agency (CRA) website, for more information.

MEDICAL EXPENSE TAX CREDIT ELEGIBLE EXPENDITURES

Expenses eligible for the medical expense tax credit (METC) are often updated with advances in medical care. For 2017, the government clarified that costs related to reproductive technology use are eligible for the METC, where such costs are incurred by an individual who requires medical intervention to conceive a child, even where treatment is not on account of medical infertility.

This measure will apply to 2017 and subsequent years. It’s also important to note that expenses incurred in previous years can be claimed by electing that this measure apply for any of the immediately preceding 10 taxation years. A comprehensive list of treatments eligible for the METC can be found on the CRA website.

DISABILITY TAX CREDIT CERTIFICATION

As of March 22, 2017, nurse practitioners have been added to the list of medical professionals who may certify eligibility of a person for the disability tax credit.

CANADA CAREGIVER AMOUNT

While the Canada caregiver amount (CCA) is a new non-refundable tax credit for 2017, it is actually a consolidation of three credits that were available in previous years:

• Credit for infirm dependants age 18 or older
• Caregiver credit
• Family caregiver credit

The new credit will provide tax relief for certain infirm dependants. The calculation of the credit amount depends on the relationship and age of the dependant.

If you have a spouse or common-law partner with an impairment in physical or mental functions, you may be entitled to claim an additional amount of $2,150 (in 2017) in the calculation of the spouse amount. Depending on your spouse’s income, you could also claim an amount up to a maximum of $6,883 (in 2017). Remember that both of these caregiver amounts are dependent on the income of your spouse, and will not be available if your spouse’s income is greater than a specific income threshold.

As well, if you have an eligible dependant 18 years of age or older, such as a parent with an impairment in physical or mental functions, you may be entitled to claim an additional amount of $2,150 (in 2017) in the calculation of the dependant amount. Depending on your dependant’s income, you could also claim an amount up to a maximum of $6,883 (in 2017). Both of these caregiver amounts are dependent on the income of your eligible dependant, and will not be available if your dependant’s income is greater than a specific income threshold.

Take note that if you have an eligible dependant under 18 years of age at the end of the year with an impairment in physical or mental functions, you may also be entitled to claim the CCA. Speak to your BDO advisor to see if you can take advantage of this credit in respect of your loved one.

TUITION TAX CREDIT

The expenses eligible to be claimed for the federal tuition credit have been expanded to include fees for an individual’s tuition paid to a university, college or other post-secondary institution in Canada for occupational skills courses not offered at the post-secondary level. The credit will be available in these circumstances if the course is taken to provide the individual with skills (or improving skills) in an occupation and where the individual is at least 16 years old by Dec. 31, 2017. Because of this change, students receiving a scholarship in qualifying occupational skills programs will be able to claim the scholarship exemption where all of the qualifying conditions are met.

PRINCIPAL RESIDENCE EXEMPTION REPORTING

If you disposed of your principal residence in 2017 and wish to claim the principal residence exemption, make sure that the disposition is reported on Schedule 3 of your income tax return. Take note that, for dispositions in 2017 and subsequent years, you also need to complete Form T2091 (IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). Complete only page 1 of Form T2091 if the property you sold was your principal residence for all the years, or for all but one year, that you owned it.

Reporting this disposition will require the following information:

• Year of acquisition
• Proceeds of disposition
• Address of the property being designated as a principal residence
• Total number of years the property was owned
• Number of years that the property is designated as a principal residence

This new reporting requirement generally applies for deemed dispositions of a principal residence as well, including dispositions arising because of a change in use.

In a significant change of policy, as of Jan. 1, 2016, the CRA will only allow the principal residence exemption to be claimed where you report the sale and the designation of your principal residence on your income tax return. The CRA will have the ability to accept a late-filed designation in respect of a principal residence, but a penalty may apply. The penalty will be the lesser of the following amounts:

• $8,000; and
• $100 for each complete month from the original due date of the relevant income tax return to the date that your request for a late-filed designation is made in a form satisfactory to the CRA.

For further information, please contact Justin Mastrangelo, CPA, CA at 905-633-4936 or via e-mail at jmastrangelo@bdo.ca