2016 Federal Budget Bill #1 Receives First Reading | KPMG | CA

2016 Federal Budget Bill #1 Receives First Reading

2016 Federal Budget Bill #1 Receives First Reading

Canadian Tax Adviser, April 26, 2016 Bill C-15, which reflects some of the proposals introduced by the 2016 federal budget, received first reading on April 20, 2016. The bill also includes several outstanding 2015 federal budget measures, such as changes under the Income Tax Act affecting the taxation of inter-corporate dividends under section 55, withholding tax requirements for non-resident employers (in the form of an amendment to section 153), and the dividend rental arrangement rules under section 112. This article provides details about what was included in the bill, as well as a recap of current outstanding federal legislation.

1000

Related content

Since Bill C-15 received first reading on April 20, 2016, the corporate tax measures that it introduces are considered to be substantively enacted for purposes of IFRS and ASPE as of this date (as Canada has a majority Liberal government). 

The bill was first released as a Notice of Ways and Means Motion on April 18, 2016. 

 

Corporate tax measures

The proposed legislation in Bill C-15 includes corporate tax measures under the Income Tax Act to:

  • Amend the anti-avoidance rules in section 55 that prevent the conversion of capital gains into tax-deductible inter-corporate dividends and make consequential stock dividend changes in section 52
  • Keep the small business tax rate at 10.5% for the 2016 and subsequent taxation years under section 125
  • Modify the dividend rental arrangement rules to deny the inter-corporate dividend deduction under synthetic equity arrangements, under sections 112 and 248
  • Expand the definition of Canadian exploration expense, to include the costs of environmental studies or community consultations to obtain certain permits, under section 66.1
  • Tighten the anti-avoidance rules for captive insurance companies by amending the foreign accrual property income (FAPI) rules in section 95. 

 

Other tax measures

The proposed legislation in Bill C-15 also includes other tax measures to:

  • Adjust the gross-up and dividend tax credit for non-eligible dividends consequential to holding the small business tax rate for the 2016 and subsequent taxation years at 10.5%
  • Introduce changes consequential to the introduction of the new 33% individual tax rate, such as: 
    • Provide a 33% charitable donation tax credit for donations over $200 to trusts that are subject to the top tax rate on all of their taxable income. 
    • Provide a new 33% tax credit rate for gifts to registered charities in excess of $200 to the extent the individual (including graduated rate estates and qualified disability trusts) has taxable income above the $200,000 threshold 
    • Increase to 33% (from 28%) the tax rate on personal services business income earned by corporations
    • Amend the capital gains refund mechanism for mutual fund trusts to reflect the 33% top rate in the formulas that are used to compute refundable tax 
  • Provide an exemption to the withholding tax requirement on payments made by "qualifying non-resident employers" to "qualifying non-resident employees" under Regulation 102 (in the form of amendments to section 153)
  • Extend the mineral exploration tax credit for flow-through share investors by one year
  • Reinstate the labour-sponsored venture capital corporations tax credit for purchases of shares of provincially registered labour-sponsored venture capital corporations for the 2016 and subsequent taxation years
  • Permit investments in limited partnerships by registered charities and registered Canadian amateur athletic associations 
  • Eliminate personal tax credits (including the textbook, education, family tax cut and child fitness tax credits) and introduce new personal tax credits (including the school supplies tax credit)
  • Limit the circumstances in which the repeated failure to report income penalty will apply
  • Permit the sharing of taxpayer information within the CRA to facilitate the collection of certain non-tax debts.

Excise Tax Measures

The proposed legislation in Bill C-15 also includes amendments to the Excise Tax Act, including tax measures to:

  • Clarify that the GST/HST generally applies to supplies of purely cosmetic procedures provided by all suppliers, including registered charities
  • Provide that when a charity makes a taxable supply of property or services in exchange for a donation, and when an income tax receipt may be issued for a portion of the donation, only the value of the property or services supplied will be subject to GST/HST
  • Ensure that interest earned in respect of certain deposits is not included in determining whether a person is considered to be a financial institution for GST/HST purposes
  • Clarify the treatment of imported reinsurance services under the GST/HST imported supply rules for financial institutions 
  • Add insulin pens, insulin pen needles and intermittent urinary catheters to the list of GST/HST zero-rated medical and assistive devices 
  • Ensure that excise tax relief for diesel fuel used as heating oil or to generate electricity is targeted to specific instances.

Non-tax measures

Proposed legislation in Bill C-15 for non-tax measures include measures to:

  • Implement the new Canada Child Benefit to replace the Canada child tax benefit and universal child care benefit
  • Make changes to Canada's Employment Insurance program, including reducing the waiting period for benefits to one week (from two) 
  • Restore the age of eligibility for Old Age Security and the Guaranteed Income Supplement to 65 from 67.

For more information, contact your KPMG adviser. 

 

Disclaimer

Information is current to April 26, 2016. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

Connect with us

 

Request for proposal

 

Submit

KPMG's new digital platform

KPMG International has created a state of the art digital platform that enhances your experience, optimized to discover new and related content.