Federal budget income tax changes―what happens now that we are going into an election?

July 02, 2019


The March 2019 federal budget contained important tax changes that represent priorities of the current Liberal government. Not all of the proposed changes were legislated before parliament rose at the end of June. With a federal election to be held October 21, 2019, any legislation not passed by now needs to be reintroduced after the fall 2019 federal election. If there is a change in government, some of these proposals may not be passed into law.

This article reviews the significant 2019 federal budget proposals and those announced in the fall economic statement that were passed into law―as well as those that were not.

All of the significant budget proposals are discussed in our 2019 federal budget report (if they were not part of our fall economic update).

Certain of the tax changes have been described in more depth in separate articles and links to these articles are included.

Changes that have been enacted into law

Accelerated investment incentives for capital investment

These changes will allow for faster tax write-offs of capital investments made after November 20, 2018, and before 2028. This faster write-off is accomplished by enhancing the capital cost allowance (CCA) available in the year of acquisition of property, when property is purchased after November 20, 2018, and becomes available for use before 2028. Property first acquired and available for use after November 20, 2018, and before 2024 will have a higher rate of CCA than property acquired in the years 2024-2027. Manufacturing and processing machinery and equipment that falls into CCA Class 53 and clean-energy equipment that falls into classes 43.1 or 43.2 will be eligible for a full deduction in the year of acquisition. Other depreciable property will be eligible for an increased first-year CCA deduction of three times the tax deduction in the year of acquisition than would be available under the rules that applied to acquisitions prior to November 20, 2018. Property that becomes available for use in the period between 2024 and 2027 will have a reduced incentive that is still higher than the rules that applied to acquisitions prior to November 20, 2018.

The new rules will not change the total amount that can be deducted for tax purposes with respect to eligible acquisitions. Rather, it will substantially increase the tax deduction available in the year of acquisition. This will be offset by smaller tax deductions in subsequent years. See the Tax Alert, Can Your Business Take Advantage of the Proposed Accelerated-depreciation Rules for further information.

Refundable Scientific Research and Experimental Development (SR&ED) investment tax credits

The budget changes remove the requirement that the income of a Canadian-controlled private corporation (CCPC) be below the small business limit as a condition of claiming refundable SR&ED investment tax credits. This is significant due to the refundable nature of such credits, as well as the rate differential. The rate on refundable SR&ED investment tax credits is 35%, compared to 15% for non-refundable SR&ED investment tax credits. Our Tax Alert, Federal Budget SR&ED Change Could Impact Your Tax Planning provides more details.

Canada Training Benefit

This benefit is part of the federal government’s strategy to assist with disruption in the workplace due to technological change. Workers will get up to $250 each year in the form of a credit that can be used when the employee pursues qualifying training or learning. Further details are provided in our Tax Alert, New Canada Training Benefit Helps Workers, Employers.

Home Buyers’ Plan

The withdrawal limit of the Home Buyers’ Plan (HBP) increased to $35,000 from $25,000 for withdrawals made after March 19, 2019. This increase allows first-time homebuyers greater access to their Registered Retirement Savings Plan to purchase or build a home. In addition to this increase, a concession was added to the HBP that, in certain circumstances, permits an individual to re-qualify for the HBP following the breakdown of a marriage or common-law partnership, applicable to HBP withdrawals made after 2019.

Business investment in zero-emission vehicles

Purchases of certain zero-emission vehicles on or after March 19, 2019, that become available for use before 2028 will be eligible for a temporary, enhanced first-year CCA rate. This will only apply where the vehicle costs no more $55,000 plus sales tax. The enhanced rate will be 100% for eligible zero-emission vehicles purchased before 2024. There will be a phase-out of the enhanced rate for vehicles that become available for use after 2023 and before 2028. This new rule will apply to zero-emission vehicles that would otherwise be included in classes 10, 10.1, or 16.

Specified corporate income

The budget proposed changes to allow the income a CCPC makes from sales of farming products or fishing catches of its farming or fishing business to any arm’s-length purchaser corporation not to be included in specified corporate income. This relieving measure was introduced to expand excluded farming and fishing sales―from those made only to a farming or fishing co-operative to those made to any arm’s length purchaser. It applies retroactively to taxation years that begin after March 21, 2016, the implementation date of the specified corporate income rules.

Changes that have not been enacted into law

Stock options

In the budget, the government stated it would release changes restricting Canada’s beneficial employee-stock-option tax treatment by applying a $200,000 annual cap on certain employee-stock-option grants that qualify for the current tax treatment. On June 17, the government released draft legislation related to this proposal, with a consultation period on the proposed changes that continues until September 16, 2019. Further details on the proposed stock-option changes are available in our Tax Alert, Stock-option Taxation―What Changes Have Been Proposed?

International taxes

Technical changes to certain international tax rules, including transfer pricing, foreign-affiliate dumping, and cross-border share-lending arrangements were proposed in the budget. Please see our Tax Alert, Foreign Affiliate Dumping Rules Extend Their Reach: Beware of the Budget 2019 Proposals.

Registered Disability Savings Plans

The proposed changes would have removed the requirement that Registered Disability Savings Plans be closed if the beneficiary no longer qualifies for the disability tax credit.

Advanced Life Deferred Annuities and Variable Payment Life Annuities

These proposals were made to provide retirees with more options for managing their retirement savings.

Individual Pension Plans (IPPs)

Proposed anti-avoidance rules were proposed to apply to transfers to an IPP from a defined benefit registered pension plan. Targeted transfers were those benefits that arose in a plan of an employer other than the IPP’s participating employer (or predecessor employer).

If you have questions about how any of these changes will affect your business, please do not hesitate to contact your trusted BDO advisor.

The information in this publication is current as of July 2, 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.