2019 Federal Tax Budget - Keep It Super Simple Version

I prepared a quick summary of the 2019 Federal Budget which was released today and can be qualified as a budget for “voters” not for “business” or the “Canadian economy”. The key headings of the tax changes are reproduced below with a one-liner to try to “keep it super simple”:

WHAT IS IN THE 2019 BUDGET

1. Employee Stock Options: remove the 50% inclusion tax benefit for individuals who work for large and mature companies for benefit in excess of CA$200,000. Measures to be drafted this summer (presumably mid-June 2019).
2. CMHC: lower monthly mortgage payments for Canadians that face legitimate challenges entering housing markets and with household incomes under $120,000 annually (incentive to be repaid either at re-sale or when the mortgage is paid off).
3. Foreign Affiliate Dumping Rules: now applicable to non-resident trusts and non-resident individuals, not just corporations resident in Canada (additional Canadian withholding tax will apply while having lower cross-border paid-up capital).
4. Canada Business Corporations Act: additional amendments to make the beneficial owner information maintained by federally incorporated corporations more readily available to tax authorities and law enforcement.
5. Canadian Training Credit: recovering 50% of eligible tuition costs, max 250$/year cumulative.
6. First-Time Home Buyers: expansion of the RRSP home buyer plan by increasing the withdrawal limit, $35,000 (or $70,000 per couple).
7. TFSA: if a TFSA is “carrying on a business”, the tax liability now extends to the TFSA holder.
8. Character Conversion Transactions: some capital gain transactions are back to be income transactions “derivative forward agreement” by narrowing the so-called ‘commercial transactions exception’.
9. Depreciation: accelerated capital cost allowance for zero-emission vehicles.
10. Supporting Medias: journalism tax incentives given to the media companies and donors to such organizations.
11. Two New Annuities: advanced life deferred annuity will be permitted under RRSPs, RRIFs, DPSP, PRPPs and RPPS. Variable payment life annuities will be permitted under a PRPP and defined contribution RPP.
12. Transfer Pricing: transfer pricing rules now have precedence over other tax rules and the definition of “transaction” has been expanded to include arrangements or events.
13. Cross-Border Securities Lending: if a foreign lender, under certain arrangements, is factually not dealing at arm’s length with the borrower or the issuer, the lender will be deemed not to be dealing at arm’s length (for any payment or deemed payment of interest), thus now subject to Canadian withholding tax.
14. BEPS / MLI: government continues to work to improve the Canadian international tax system and ensure a response to cross-border tax avoidance.
15. SR&ED: taxable income test removed as criteria to get access to the 35% refundable tax credit (phase out, now applies only to CCPCs with taxable capital over $10 million).
16. Cultural Property: donation of foreign cultural property now admissible.
17. Individual Pension Plan: planning that circumvent limits dealing with an individual ceasing being a member will now be considered to be a ‘non-qualifying transfer’ and included in income for tax purposes.
18. Mutual Funds: deduction denied to a mutual fund trust in certain situations where the ‘allocation to redeemers methodology’ is implemented (effectively matching the capital gains realized by the mutual fund trust with the capital gains realized by the redeeming unitholders on their units).
19. Glitch Fixed: change in use rules for multi-residential property fixing a technical tax glitch (e.g.: in a situation where the principal residence exemption was claimed).

 WHAT IS NOT IN THE 2019 BUDGET

1. TOSI: no legislation on ‘tax on split income’ to simplify the current tax regime.
2. Passive Income: no legislation on the passive income to simplify the current system, including the two new RDOTH accounts.
3. Small Business Deduction: no SBD legislation to simplify the current system for SMEs.
4. Rate: no tax rate reductions, neither personal, nor corporate.
5. Capital Gain: no increase in the capital gain rate, still 50%.
6. Reform: no promise to perform comprehensive tax reform.
7. Capital Gain Deduction: no intergenerational transfers’ legislation. Still no harmonization with Québec tax rules.

Canadian federal election is scheduled to take place on October 21, 2019… Just saying.

Cheers, RSB  

Raphael Barchichat, LL.B., LL.M., JD, LL.M. Fisc. / LL.M. Tax

Tax Partner / Associé, Fiscalité

[email protected]

The information contained is of a general nature. No one should act without appropriate professional tax advice; contact PSB BOISJOLI’s tax group for any question.