While the March 21, 2013 federal budget’s main thrust seemed to be on jobs and the economy, the budget includes many measures aimed at addressing what the government calls tax “loopholes” in the Canadian tax system. From GST to leveraged life insurance to tax loss trading to farm losses, the finance minister talked about his focus on plugging loopholes. There are positives (+) and negatives (-) for you personally and for your business. These are just highlights though—where you see something of interest or concern, please contact your professional accountant to work through the changes with you.
Personal Tax Changes
(-) Adjust the gross-up factor for non-eligible dividends and the corresponding tax credit—net result is to increase the federal tax rate on non-eligible (i.e. higher tax rate) dividends by 1.6 per cent starting in 2014.
(+) Increase lifetime capital gains exemption to $800,000 (up from $750,000) on qualified small business corporation shares/farms/fishing property for the 2014 year and indexed for inflation subsequently. This could give rise to additional tax savings of $12,000 or more.
(-) Measures to discourage taxpayers from participating in certain charitable donation or other tax shelters.
(+) Temporary first-time charitable donor’s super credit to supplement the existing charitable donation tax credit with an additional 25 per cent tax credit for a first-time donor on up to $1,000 in donations.
Business Tax Changes
(+) The Canada Job Grant Program could provide up to $15,000 per person for training. To be eligible, your business must have a plan to train unemployed and under-employed Canadians for an existing or better job.
(+) Extend for one year the temporary Hiring Credit for Small Business—the credit will provide up to $1,000 against a small company’s increase in its 2013 Employment Insurance Premiums.
(+) Extend the accelerated capital cost allowance (CCA) on manufacturing and processing and clean-energy generation equipment through 2015.
(-) Phasing out the small business deduction and preferential income tax rate for credit unions.
Mining Tax Changes
(-) Pre-production mine development expenses will not be deductible in the year incurred but will be deductible at a rate of 30 per cent on a declining-balance basis—phased in to 2017.
(-) Phasing out the additional allowance of capital cost allowance on certain new mines or mine expansions over the 2017 to 2020 calendar years.
(-) Amendment to prohibit the deduction of amounts contributed to a Qualifying Environmental Trust for the purpose of funding the future reclamation of a qualifying site where related to future obligations.
(+) Extend the eligibility for the mineral exploration tax credit for flow-through share investments for one year.
The budget proposes additional administrative reporting requirements related to electronic fund transfers.
There is also a required new disclosure of third-party preparers on Scientific Research and Experimental Development program claims—there is no cost associated with this disclosure—but penalties where it is incomplete or inaccurate.
The real showstopper was the introduction of a program under which rewards will be paid to individuals, with knowledge of international tax non-compliance, who snitch and the knowledge results in the collection of outstanding taxes. The payments will be up to 15 per cent of the federal income tax collected provided it is in excess of $100,000. It will be interesting to see if CRA yields a return on this proposed investment!
To balance the budget by 2016, there obviously had to be more (-) than positive overall.
If you see a few (+) items that could affect you or your business, then congratulations!
Laurie Bissonette is a partner with KPMG Enterprise in Sudbury, Ontario.