Finance Committee Issues Last-Minute Pre-2016 Federal | KPMG | CA

Finance Committee Issues Last-Minute Pre-2016 Federal Budget Recommendations

Finance Committee Issues Last-Minute Pre-2016 Federal

Canadian Tax Adviser, March 14, 2016. The House of Commons Standing Committee on Finance has released its recommendations for measures that could be included in the March 22, 2016 federal budget. These recommendations are contained in the Committee’s report on its pre-budget consultations, issued on March 11, 2016.

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One of the recommendations concerns the tax treatment of Canadian controlled private corporations (CCPCs). The Liberal party’s election platform indicated that a Liberal government would consider changes to “ensure that CCPC status is not used to reduce personal income tax obligations for high income earners rather than supporting small business”.

However, the Committee recommends that the federal government not make any changes to the current federal taxation regime and other rules as they apply to small businesses, including professional businesses, incorporated as CCPCs.

The report does not include any specific recommendations related to the stock option deduction, capital gains inclusion rate or international tax.

The Committee usually tables a pre-budget report each year with recommendations for budget measures developed through its pre-budget consultation process. Although this year’s consultation was significantly shorter than the Committee’s normal pre-budget process due to the 2015 federal election, the report runs 117 pages and includes 56 recommendations that the Committee believes should be included in the March 22, 2016 federal budget.

Based on previous experiences with majority governments, the recommendations in these reports often form the basis for the government's budget proposals, if not in the current year’s budget, then in a later year. However, these recommendations do not necessarily supersede the elected party’s platform and mandates. The budget may also include other measures not mentioned in the report.

Highlights of the Committee's tax-related recommendations and other items that may be included in this year's budget are discussed below.

Business tax

The Committee recommends that the federal government:

  • Not make any changes to the current federal taxation regime and other rules as they apply to small businesses, including professional businesses, incorporated as Canadian-controlled private corporations.
  • Review the country’s taxation policy regarding small business transfers with a view to facilitating the transfer of such businesses within families.
  • Include a robust plan in the forthcoming budget designed to encourage private-sector business investment in Canada. The plan should include incentives, regulatory improvements, and certainty regarding taxation and other rules in relation to business investment.
  • In order to encourage investment in broadband and wireless networks in rural Canada, work with eligible telecommunication companies to create a rural broadband program. To fund the program, the government should consider changing the capital cost allowance rates for classes 8, 42 and 46, which address communications networks equipment, including broadband networks.
  • Provide incentives for Canadian firms to develop and adopt green technologies, and support the development of emerging green technology manufacturing industries in Canada. Moreover, the government should invest in green infrastructure projects, such as clean energy generation, interprovincial energy grids, public transit and waste treatment facilities.
  • Consistent with its fiscal plan, provide targeted support to those Canadian regions that are experiencing the most severe effects of the low value of the Canadian dollar, low oil and other commodity prices, and slower growth in emerging markets. In doing so, the government should focus on supports that would have an immediate impact in creating jobs and assisting those who have lost their jobs.

Business – Federal research funding

The Committee recommends that the federal government:

  • Increase funding to the three federal granting councils and to the research support fund. In addition to an overall increase in funding, the government should consider the proposals for substantive increases in research funding that were highlighted during the consultation process in advance of the 2016 budget. 

Business – Temporary Foreign Workers program

The Committee recommends that the federal government:

  • In the immediate term, address the negative impacts of the Temporary Foreign Worker Program on certain sectors, including livestock and fish processing.
  • Conduct a full review of the Temporary Foreign Worker Program. This review should study the possibility of providing a path to citizenship for those who desire to become Canadian citizens.

Tax system review

The Committee recommends that the federal government:

  • Initiate a comprehensive review of Canada’s tax laws with the objective of making the country’s taxation system simpler, fairer and more efficient.

Individuals

The Committee recommends that the federal government:

  • As a means of contributing to economic growth, consider the development of a labour mobility tax measure that would enable workers to deduct the direct costs of expenses they incur for employment purposes.
  • Introduce a streamlined, more generous and better targeted Canada child benefit. As well, the government should work with the provincial/territorial governments with a view to ensuring that they do not deduct the amount of the benefit from social assistance payments or include the amount of the benefit when determining total income for purposes of means-tested benefits.
  • Work with the provinces/territories to transform Canada’s post-secondary education system with a view to giving more Canadian students access to affordable post-secondary education. As part of these efforts, tax expenditures associated with ineffective federal textbook and education tax credits should be reallocated to federal non-repayable grants and to increase the income thresholds for grant eligibility.
  • Establish a national housing strategy. In developing this strategy, the government should review the Housing First and Investment in Affordable Housing initiatives, housing co-operatives and measures to support first-time homebuyers.

Individuals – Employment Insurance, Canada Pension Plan, Old Age Security, Guaranteed Income Supplement

The Committee recommends that the federal government:

  • Work with the provinces/territories to enhance the Canada Pension Plan.
  • Ensure that age 65 continues to be the age at which Old Age Security payments can begin to be made.
  • Increase the amount of Guaranteed Income Supplement benefits by establishing a “top-up” for unattached seniors.
  • On a priority basis, amend the Employment Insurance Act to eliminate the 910-hour rule for new entrants and to reverse the changes that were made in 2012. As well, the Act should be amended to restore fairness to the governance, adjudication and appeals processes.
  • Reinstate the Pilot Project to Extend Employment Insurance Benefits, which provided an additional five weeks of benefits to beneficiaries residing in areas of high unemployment and reduced the duration of time during which a beneficiary had no income or benefits.
  • Review the structure and operation of the Social Security Tribunal of Canada as it relates to the Canada Pension Plan – Disability and Employment Insurance appeal processes, and ensure the establishment of a system that meets the needs of Canadians.

Excise taxes

The Committee recommends that the federal government:

  • Implement greater deterrence measures in relation to the illicit tobacco market, including additional resources for appropriate federal investigative agencies. Furthermore, the government should ensure that fines levied and penalties applied against illegal tobacco traffickers are collected, and that relevant laws are enforced.

For more on the upcoming 2016 federal budget, see KPMG’s TaxNewsFlash-Canada 2016-07, “2016 Federal Budget — What Tax Changes are in Play?”

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