Canadian Budget 2015 Overview

On the 21st of April, the Federal Finance Minister, Joe Oliver, introduced the budget for 2015, which along with reducing the tax burden on parents (Read: Canadian Tax Deductions & Credits for Parents), intends to help Canadian businesses thrive in the global economy. Here is a brief overview of the 2015 Canadian Budget outlined by AG Tax analysts. Please consult your tax preparer for more details.

For Individual/Personal Taxpayers

• TFSA contribution limit increased from $5,500 per year to $10,000 per year (with no inflation adjustment) for 2015 and future tax years.
• Minimum withdrawal amount for Registered Retirement Income Fund (RRIF) to be reduced to reflect long term returns and inflation.
• A non-refundable ‘Home Accessibility Tax Credit’ of maximum $1,500 can be claimed, along with the Medical Expense Credit, by qualifying personal taxpayers who incur qualifying expenses of up to $10,000 to make the house accessible (i.e. safer and useable) for certain qualifying individuals, such as: senior citizens, or people with disabilities.
• Revision of the credit calculation for Family Tax Cut for future tax years in order to prevent it from affecting the transfer of education-related expenses between parent taxpayers. Any taxpayers affected by the Family Tax Cut for tax year 2014, will be automatically reassessed after the legislation receives royal approval.
• Non-eligible dividend tax rates to be increased from 2016 onwards with the top federal tax rate of 21.62% in 2016 increasing to 22.21% in 2017, 22.61% in 2018 and following, due to the decrease in small business tax rates.

For Business/Corporate Taxpayers

• To promote small businesses and reduce the tax burden to some extent, the CRA has decided to reduce the small business tax rate by a small margin every year until 2019, i.e from 11% to 10.5% for 2016, 10% for 2017, 9.5% for 2018 and 9% for 2019. Applicable on a pro-rata basis for corporations with taxation years that straddle these dates.
• New employers with monthly employee tax withholdings of less than $1,000 may remit these tax withholdings to the CRA on a quarterly basis instead of the usual monthly remittance basis, until the monthly withholdings amount totals to more than $1,000.
• Employee Insurance (EI) Premium Rate to be lowered from $1.88 in 2016 to $1.49 (expected) in 2017 based on the seven-year break-even EI premium rate-setting mechanism, ensuring that EI premiums are no higher than needed to pay for the EI program over time.
• New Class 53 will replace class 29 and provide Capital Cost Allowance (CCA) of 50% on a declining-balance basis for machinery and equipment acquired after 2015 and before 2026 primarily for use in Canada for the manufacturing and processing of goods for sale or lease calling it the Accelerated Capital Cost Allowance.
• The budget proposes to make changes to the wording and structure of section 55, an anti avoidance rule which is intended to prevent the reduction of a capital gain by way of payment of a deductible inter-corporate dividend, so that any dividend (received after April 20, 2015) to which section 55 applies will either be treated as a gain from the disposition of capital property for the year or added to the proceeds on a disposition. For dividends that are paid or become payable after October 2015, the dividend rental arrangement rules are modified to deny the inter-corporate dividend deduction on dividends received by a taxpayer on a Canadian share in respect of which there is a synthetic equity arrangement (i.e. an arrangement, in respect of a share owned by a taxpayer enters into one or more agreements that provide to a counterparty all or substantially all of the risk of loss and opportunity for gain or profit in respect of the share).
• Circumstances determining whether income from a business, whose principal purpose is to earn income from property, should qualify as active business income, will be reviewed as per this budget. Individuals may submit their comments by August 31, 2015.

On the International Tax Front

• Foreign property reporting on Form T1135 to be more streamlined and simplified. The CRA has introduced a new simplified form for reporting of foreign assets which are valued at or less than $250,000 during the entire year.
• From January, 2016 onwards, certain non-resident employers with non-resident employees working in Canada may find some relief from payroll withholding requirements.
• With the U.S. FACTA regulation extending to cover foreign institutions and tax authorities, the G-20 countries also formed a new reporting standard for automatic information exchange developed by the Organization for Economic Development and Co-operation. Under the new standard, foreign tax authorities will provide information to the CRA relating to financial accounts in their jurisdictions held by Canadian residents, while the CRA would in return provide information to the foreign tax authorities of accounts held in Canada by their country residents. It is intended to implement this reporting standard from July, 2017 with a first exchange of information in 2018. By then, financial institutions should have systems in place to identify accounts held by residents of any country other than Canada and to report the required information to the CRA.
• CRA would be introducing an anti-avoidance rule to prevent Canadian taxpayers from shifting foreign accrual property income from the insurance of Canadian risks offshore. For taxation years after April 20, 2015, a foreign affiliate’s income in respect of giving up on Canadian risks will be included while calculating the affiliate’s foreign accrual property income.
• From 2016 onwards, taxpayers will be exempt from any capital gains tax with respect to the sale proceeds received from the disposition of private corporation shares and real estate, and donated to a qualified charity within 30 days after the disposition, provided the transaction was dealt at arm’s length at all levels. The exemption would be based on the portion of the sales proceeds donated towards the qualifying charity.
• Registered charities and registered amateur athletic associations may acquire and hold a passive interest in a limited partnership without being considered to be carrying on the business of the partnership. Provided it is an arm’s length transaction at all levels, and less than or equal to 20% of the interests. For the investment to be considered passive, the charity or association must deal at arm’s length with each general partner of the partnership and must, together with all non-arm’s length entities, hold 20% or less of the interests in the partnership.

However, this rule may not apply if the charitable organization or public foundation carries on a related business through a limited partnership.

• The 2015 budget allows a foreign charitable foundation to be considered a qualified charity organization for a 24 month period if the foreign charity receives a gift from the government, and it is pursuing disaster relief related or other urgent humanitarian aid activities, or is carrying on activities in the national interest of Canada. This measure will apply on royal assent to the enacting legislation.

Conclusion

While these are some of the tax amendments and laws for tax year 2015 and subsequent years, there are additional amendments related to penalties on repeated failure of income reporting regarding debts collected by the CRA which are still to receive royal acceptance. However, overall the budget provides for numerous tax benefits for both individuals and corporations. It is important to talk to your accountant to determine how to leverage these tax benefits most effectively.

AG Tax LLP Can Help

Tax situations can be very complicated, especially if there are minor situations which can have severe impact on one’s taxes.

If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.

Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canadian, and other international tax laws.

We can assist with:

• Canadian Personal and Corporate tax returns
• Cross Border Taxation and Business Planning
• U.S. Personal and Corporate Taxation
• Disclosure of Foreign Assets and other information filings
• Retirement planning
• Estate Planning, Inheritance tax advice

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