New Canada Caregiver Credit
Budget 2017 proposes to eliminate the current Caregiver Credit, Infirm Dependant Credit and Family Caregiver Tax Credit. These three credits will be replaced with a single new tax credit, the Canada Caregiver Credit, which is intended to provide better support to those who need it most, apply to caregivers whether or not they live with their family member and help families with caregiving responsibilities.
The Canada Caregiver Credit will provide a 15% non-refundable tax credit for (i) up to $6,883 of expenses incurred for the care of dependent relatives (i.e., parents, brothers and sisters, adult children and other specified relatives) with infirmities and (ii) up to $2,150 on expenses incurred for the care of a dependent spouse, common-law partner or minor child with an infirmity. The credit will be reduced on a dollar-for-dollar basis where the dependant’s net income exceeds $16,163 (indexed for inflation for subsequent years). The credit will be available beginning in the 2017 taxation year.
Extended Eligibility for Tuition Tax Credit
Budget 2017 proposes to extend the range of courses that are eligible for the Tuition Tax Credit to include occupational skills courses that are undertaken at a post-secondary institution in Canada and to allow the full amount of bursaries received for such courses to qualify for the scholarship exemption.
Elimination of Home Relocation Loan Deduction
Generally, where an employee receives a loan from his or her employer with an interest rate that is below the prescribed rate, the employee will realize a taxable benefit that must be included in his or her income for the year. However, where the loan is an “eligible home relocation loan,” the employee may be able to deduct all or a portion of the taxable benefit that arises as a result of the loan (subject to limits set out in the ITA). Budget 2017 proposes to eliminate this deduction for taxable benefits that arise in 2018 and subsequent years on the basis that the eligible home relocation loan deduction disproportionately benefits the wealthy and does not assist the middle class.
Extension of Mineral Exploration Tax Credit for Flow-Through Share Investors
Resource companies can renounce or “flow-through” certain expenses related to Canadian exploration activities to their investors via flow-through shares. The investors can then deduct those expenses in computing their own taxable income. In addition, investors in mining flow-through shares can take advantage of the mineral exploration tax credit, which provides an additional deduction of 15% of mineral exploration expenses incurred in Canada that are flowed-through to investors.
Currently, the mining exploration tax credit will no longer apply to flow-through share agreements entered into after March 31, 2017. Budget 2017 proposes to extend the eligibility for the mining exploration tax credit for an additional year so that it applies to flow-through share agreements entered into on or before March 31, 2018. Pursuant to a “look-back” rule in effect, expenses that are incurred in respect of funds raised under a flow-through share agreement can be renounced with an effective date in the year that the funds were raised for the expenses to be incurred in the following calendar year.
Anti-Avoidance for Registered Plans
The ITA contains numerous anti-avoidance rules, which apply to tax-free savings accounts (TFSAs), registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) to ensure that such plans do not provide unintended excess tax benefits, including the following:
- advantage rules which prevent the exploitation of the tax attribute of a registered plan, such as shifting returns from a taxable investment to a “registered plan” (currently defined as a TFSA, RRSP or RRIF);
- prohibited investment rules which generally provide that investments held in a registered plan must be “arm’s length” investments; and
- non-qualified investment rules which generally provide a restriction on the classes of assets that may be held in a registered plan.
Budget 2017 proposes to extend these anti-avoidance rules to also apply to registered education savings plans (RESPs) and registered disability savings plans (RDSPs). The new rules would generally apply to transactions occurring and investments acquired after March 22, 2017 (subject to certain exceptions described below). Investment income earned after March 22, 2017, is considered to be a “transaction occurring” after March 22, 2017, for these purposes.
The following exceptions to the above measures have been proposed:
- the advantage rules will generally not apply to swap transactions undertaken before July 2017;
- further, swap transactions entered into to ensure that an RESP or RDSP complies with the new rules by removing an investment that would otherwise be a prohibited investment or would be subject to the advantage rules will be permitted until the end of 2021; and
- where a taxpayer receives distributions on investment income from an investment that was held on March 22, 2017, and that investment becomes a prohibited investment as a result of these new measures, the taxpayer may elect (subject to certain conditions) by April 1, 2018, to pay Part I tax on such distributions in lieu of paying the advantage tax.
Review of Tax Expenditures
Budget 2017 reaffirms the government’s commitment in Budget 2016 to conduct a wide-ranging review of all tax expenditures with the core objective of looking for opportunities to eliminate poorly targeted and inefficient tax measures and to identify those tax benefits that unfairly benefit the wealthiest Canadians.
Increased Enforcement of Tax Evasion
Budget 2016 proposed to invest additional funds for the CRA for the purposes of improving service levels, cracking down on tax evasion, combatting tax avoidance and enhancing tax collections.
Budget 2017 proposes further measures in this regard, with a commitment to invest an additional $523.9 million over five years to prevent tax evasion and improve tax compliance. The proposed measures stated to crack down on tax evasion and combat tax avoidance are the following:
- increasing verification activities;
- hiring of additional auditors and specialists with a focus on the underground economy;
- developing business intelligence infrastructure and risk assessment systems to target high-risk international tax and abusive tax avoidance cases; and
- improving the quality of investigative work that targets criminal tax evaders.
These proposed measures are projected to generate increased tax revenues of $2.5 billion over the next five years.
Electronic Distribution of T4 Slips
Currently, employers are required to provide two copies of T4 information slips (T4s) to each employee. These slips can be delivered either in paper copy or, with the relevant employee’s express consent, electronically.
Budget 2017 proposes to allow employers to distribute T4s electronically to currently active employees without having to obtain express consent from the relevant employee in advance. The new measures include requirements that the employer have adequate privacy safeguards in place to ensure that employee information remains confidential prior to issuing T4s electronically without the employee’s consent. The new measures will also require employers to provide paper T4s to any employee who does not have confidential access to view or print the T4 (e.g., employees on leave or former employees) and to provide paper copies of the T4 to any employee who requests a paper copy.
The new measures will apply to T4s issued for 2017 and subsequent taxation year