Tax Alert: 2017 Fall Economic Statement

October 25, 2017

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On October 24, 2017, the government released its Fall Economic Statement. Growth in the Canadian economy and the related increase in tax revenues has decreased the projected federal deficit for the current fiscal year by approximately $8.6 billion, from an initial deficit of $28.5 billion projected for the 2017-18 fiscal period to a projected deficit of $19.9 billion in this Economic Statement. The projected deficits for 2018-19 and 2019-20 are also expected to decline from those that were anticipated in the 2017 federal budget. The government is proposing to reduce certain taxes and increase certain tax benefits because of these stronger economic results. However, increased taxes for the wealthy, in particular the proposed income sprinkling changes, will partially offset the tax reductions and increased tax benefits.

In the Fall Economic Statement, the government announced an increase to the Canada Child Benefit (CCB), an increase in the Working Income Tax Benefit (WITB), and changes to the dividend gross-up and dividend tax credit rates on ineligible dividends for 2018 and 2019. The changes to the ineligible dividend tax rate are consequential to the reduction in the small business tax rate announced on October 16. These small business tax changes and confirmation that the government plans to proceed with income sprinkling proposals are discussed in our October 16 Tax Alert, The Government responds with significant changes from Private Company Consultation. Draft legislation was also introduced on October 24 to effect the CCB, small business tax rate and dividend tax credit changes.

Changes to Taxes on Ineligible Dividends

The top personal federal tax rate on ineligible dividends will increase from 26.30% in 2017 to 26.64% in 2018 and 27.57% in 2019. These changes are as result of the announced decrease in the federal small business tax rate from 10.5% in 2017 to 10% starting January 1, 2018 and 9% starting January 1, 2019.

Canada Child Benefit

The CCB was introduced in 2016 to replace the Universal Child Care Benefit, the Canada Child Tax Benefit, and the National Child Benefit Supplement. This tax-free benefit provides an amount to families with household income under $200,000 and children under age 18. The amount of the benefit is tied to family income so that benefits are reduced as income rises. The CCB was to be indexed to inflation starting July 2020. In the Fall Economic Statement, it was announced that this indexing would instead start July 2018. In addition to indexing the amount of the benefit, the adjusted family income thresholds above which the CCB is reduced will also be increased.

Working Income Tax Benefit

The WITB is a refundable tax credit that provides a supplement to the earnings of low-income workers. The government announced in the Fall Economic Statement that it would further enhance the WITB by increasing the maximum benefit levels and expanding the income range of those who are eligible for this benefit. Details of this proposal will not be provided until the 2018 federal budget is presented.

Summary

We are committed to keeping you updated on current tax changes. Please contact one of our trusted Tax advisors at BDO Canada to gain more information on these tax changes.

Dave Walsh
Partner, Tax Service Line Leader

Rachel Gervais
Partner, GTA Group Tax Service Line Leader

Peter Routly
Partner, Central Group Tax Service Line Leader

Daryl Maduke
Partner, West Group Tax Service Line Leader

Shelley Smith
Partner, East Group Tax Service Line Leader

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The information in this publication is current as of October 25, 2017.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.