2019 FEDERAL BUDGET EXECUTIVE SUMMARY

We have carefully reviewed the 2019 Federal Budget papers. Instead of providing a detailed summary of all tax measures, most of which impact a small minority of taxpayers, what follows is what we feel is relevant to you.

PERSONAL TAX

• No changes to personal tax rates.
• Shares acquired pursuant to a stock option agreement that otherwise would be subject to a 50% tax deduction will soon be limited to those shares having a value of $200,000 at the time the options are granted. Although there is an intention to restrict the new measure to “mature companies”, few details have been provided other than that these rules are to apply prospectively, based on announcements which are expected before the summer of 2019.
• The amount that can be withdrawn from an RRSP to buy or build a first-time home is increased from $25,000 to $35,000 for withdrawals after March 19, 2019.
• Starting in 2019, eligible workers will be entitled to claim a refundable tax credit of up to $250 per year on a cumulative basis of up to $5,000 on eligible tuition and other like fees incurred.
• Introduction of a new non-refundable temporary tax credit of 15% (maximum $75 credit) will be introduced for individuals who subscribe for Canadian digital news.

CORPORATE TAX

• No changes to corporate tax rates.
• The annual expenditure limit of $3 million for qualifying SR&ED expenditures will no longer be reduced by taxable income in excess of certain thresholds. For taxation years ending on or after March 19, 2019, the only remaining criteria for reduction will be the prior year’s taxable capital.
• A new CCA class will permit businesses to claim a 100% write-off for the acquisition of zero-emission vehicles after March 19, 2019, up to a maximum of $55,000, plus sales taxes.

INTERNATIONAL TAX

• For transactions occurring on or after March 19, 2019, the foreign affiliate dumping rules are expanded to apply where a corporation resident in Canada is controlled by non-resident individuals or trusts or any non-arm’s length group of non-resident individuals, trusts or corporations.
• Where transfer pricing rules can apply at the same time as other income tax rules, there can be ambiguity as to which set of rules should be used to compute income. For taxation years that begin on or after March 19, 2019, priority will be given to adjustments under the transfer pricing rules.
• The definition of “transactions” for purposes of the three year extension to the normal reassessment period will be modified to align with the transfer pricing definition of “transactions”.

OTHER MEASURES

• New residential and commercial real estate audit teams will be created in Ontario and British Columbia. These teams will focus on ensuring proper reporting of principal residence exemptions, distinguishing between capital gains and income treatment and reporting of commissions and sales tax remittances.
• The Canada Business Corporations Act (“CBCA”) was recently amended to require corporations to create and maintain a register containing certain information relating to individuals who own or control (directly or indirectly) 25% or more of votes or value in CBCA corporations. These rules are intended to make ownership and control of corporate entities more transparent and are intended to come into force on June 13, 2019. Budget 2019 proposes to make further amendments to the CBCA to make this register more readily available to tax authorities and law enforcement, but no details have been provided.