Tax Alert - Tax Changes Expected From Canada’s New Government

October 22, 2019


The Liberal party was re-elected with a minority government in the election held on October 21, 2019. The Liberals made many promises as part of their ‘Forward – A Real Plan for the Middle Class’ platform. This Tax Alert examines what we may expect from this new minority Liberal government with respect to tax changes and what they mean for Canadians.

Personal tax

Basic personal amount to Increase to $15,000 – In what will be the most expensive tax proposal in the Liberal platform, Canadians may benefit from an increase in the basic personal amount to $15,000 - the amount a Canadian resident can earn annually without having to pay any federal income tax. In 2019 this amount is $12,069. Although unclear, it appears that Canadians with taxable income of more than $147,667 may not benefit from this proposal.

Maternity and paternity benefits – The Liberals promised to make sure families get more money right away by making maternity and parental benefits tax-free. It is unclear whether this change will remove withholding tax on these Employment Insurance (EI) payments or make the EI payments tax-free. Currently these benefits must be included in taxable income.

Child tax benefit – A proposed increase by 15% for children under the age of one.

Child disability benefit – A proposed doubling of this tax-free monthly benefit from its current level.

Old Age Security (OAS) – A proposed increase for the OAS by 10% for seniors when they turn 75.

Northern residents deduction – A promise has been made to make improvements to this tax deduction.

Corporate and business tax

Corporate tax reduction for businesses that develop technologies or manufacture zero-emissions products – Corporate taxes are proposed to be cut in half for these businesses, presumably by reducing their federal corporate income tax rate to 7.5% from 15%.

Federal incorporation costs – A proposed fee reduction to $50 from its current level of $200.

Intergenerational transfers of farms – The Liberals have committed to improving the tax system to make it easier to transfer family farms to the next generation.

International businesses – The Liberals included two initiatives in their platform, both targeted to ensure that multinational corporations (MNCs) pay their fair share of income taxes. They promise to modernize anti-avoidance rules to stop large MNCs from being able to shop for lower tax rates by constructing complex schemes between countries. They also promise to crack down on what they call ’corporate tax loopholes’ that allow companies to reduce the tax they pay by excessively deducting interest on debt. This likely means that anti-hybrid rules may be introduced into Canadian tax law. Any international businesses that make use of hybrid entities or instruments in their structures should start to consider the impact that any changes may have on their corporate structures and the tax they pay.

Multinational tech giants – The Liberals also propose changes to Canadian tax law to make sure that multinational tech giants pay corporate tax on the revenue they generate in Canada. Canada currently contributes to work being done globally at the Organization for Economic Cooperation and Development on tax and the digital economy. We can expect that the government will consider implementing recommendations from this work. In addition, the Liberals propose to change the GST/HST rules to ensure that international digital businesses, whose products are consumed in Canada, have to register, collect, and remit GST/HST in a similar manner to Canadian digital businesses. This will likely be similar to changes Quebec has recently made to the QST in this area.

Other proposals

Vacant residential properties owned by non-residents – The Liberals promise to put in place a consistent national tax on vacant residential properties owned by non-Canadians who do not live in Canada. It is unclear how this would be implemented.

10% Luxury Tax – The Liberals promise to introduce a 10% tax on luxury cars, boats, and aircrafts over $100,000. Canadians who are looking to purchase these type of assets should consider whether to do so before this tax is introduced.

Swipe fees – The Liberals propose to eliminate the swipe fee on GST and HST for credit transactions, which will apparently save Canadian businesses $500 million annually.

Comprehensive review of government spending and the tax system – This review will only be targeted at wealthy Canadians to ensure they do not benefit from unfair tax breaks. This is not the comprehensive tax review called for by businesses and professional organizations across the country, such as the Canadian Chamber of Commerce and CPA Canada.

The minority party Liberals will need the support of Members of Parliament from other parties to pass any tax changes into law. It is unclear at this time whether all or any of these proposals will become law under this minority government.

Please contact your BDO Tax Advisor if you have any questions on how any proposed changes will affect you.

The information in this publication is current as of Oct. 22, 2019.

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.