Canada: Budget 2014 - The Good, The Bad

Last Updated: March 27 2014
Article by Samantha Prasad

Another year, another budget. Sometimes I feel like I should not be surprised by what the Canadian government has in mind. Other years, I feel like a truck has side-swiped me out of nowhere.

This year's budget had a bit of both. And if you have not had a chance to spend a couple of hours reading the ins and outs of the economic outlook according to the government of Prime Minister Stephen Harper, then here is a summary of some of the personal tax proposals that might affect you.


Split Income

Currently the Tax Act has a definition of "split income" aimed at minors so that they are taxed at the highest federal tax rate.

The Budget proposes to amend the definition of "split income" to include income that is directly or indirectly paid or allocated to a minor from a trust or partnership if the income is derived from a business or a rental property AND a person who is related to such a minor is either:

  • Actively engaged on a regular basis in the activities of the trust or partnership to earn income from any business or rental property; or
  • In the case of a partnership, has an interest in the partnership (whether held directly or through another partnership).

This measure will apply to the 2014 and subsequent taxation years.

Bye Bye Graduated Rates

This proposal was hinted at by the government in last year's budget, so it came as no surprise that they actually made good on their threat.

Currently, testamentary trusts created under a Will get the benefit of the graduated tax rates. The Budget proposes that beginning in 2016, testamentary trusts (other than the first 36 months of an estate) will no longer benefit from the following:

  • Gradated tax rates;
  • Exemption from making income tax instalments; and
  • Having an off-calendar year end.

As a result, after the first 36 months of an estate that arises after death, testamentary trusts will now be subject to a flat toptax rate. There will continue to be access to graduated rates for trusts that have individuals eligible for the federal Disability Tax Credit as beneficiaries.

Tax Credits

Medical Expense Tax Credit – This credit will be expanded to include the design of an individualized therapy plan (subject to certain conditions) as well as expenses for service animals specially trained to assist individuals in managing severe diabetes.

Adoption Expense Tax Credit Currently the maximum credit for adoption expenses is $11,774 per child. This amount has been increased to $15,000 per child for 2014 (to be indexed to inflation for years after 2014).

Mineral Exploration Tax Credit– The Budget has extended the eligibility for the Mineral Exploration Tax Credit for flow-through share investors for one year. This applies to flow-through share agreements entered into on or before March 31, 2015.

GST/HST Credit– You will no longer be required to apply for the GST/HST credit on your return; rather the CRA will automatically determine if an individual is eligible to receive the GST/HST Credit. A notice of determination will be sent to you rather than having to apply for the credit. This measure will apply for 2014 income tax returns and for subsequent taxation years.

Search and Rescue Volunteers Tax Credit– The budget proposes a Search and Rescue Volunteers Tax Credit to allow eligible ground, air and marine search and rescue volunteers to claim a 15 per cent non-refundable tax credit based on an amount of $3,000. This measure will apply to the 2014 and subsequent taxation years.

Pension Transfer Limits

Back in 2011, a special rule was introduced in certain situations allowing a member leaving a defined benefit registered pension plan (RPP) – one whose estimated pension benefit was reduced due to plan underfunding – to disregard that benefit reduction when calculating the portion of a lump-sum commutation payment from the RPP that may be transferred to an RRSP on a tax-free basis (i.e., the transferable amount).

If the rule applies, the maximum transferable amount for a plan member who leaves an underfunded RPP will be the same as if the RPP was fully funded.

The budget proposes to extend this rule to commutation payments made, after 2012, to a plan member who leaves an RPP if that payment has been reduced due to plan underfunding and either:

  • If the plan is an RPP other than an individual pension plan, the reduction in the estimated pension benefit that results in the reduced commutation payment is approved pursuant to the applicable pension benefits standards legislation; or
  • If the plan is an individual pension plan, the commutation payment to the plan member is the last payment made from the plan (i.e., the plan is being wound up).

This application of the rule must still be approved by the CRA.

Amateur Athlete Trusts

The budget proposes to allow income contributed to an amateur athlete trust after 2013 to qualify as earned income for purposes of determining the registered retirement savings plan (RRSP) contribution limit of the trust's beneficiary.

If an individual who contributed to an amateur athlete trust before 2014 makes an election in writing and submits it to the CRA before March 3, 2015, any contributions made in 2011, 2012 and 2013 will also qualify as earned income.

The individual's RRSP limit will be re-determined for each of these years and any additional RRSP room will be added to the individual's RRSP contribution room for 2014.


The budget proposes to extend eligibility for the intergenerational rollover of farming and fishing property and the lifetime capital gains exemption to:

  • Property of an individual used principally in a combination of farming and fishing;
  • An individual's shares in a corporation, or interest in a partnership, if the corporation or partnership carries on both a farming business and a fishing business (in particular, if a property of the corporation or partnership is used principally in either business, or is used principally in a combination of farming and fishing, the property will count towards the existing "all or substantially all" test).

Tax Deferral for Farmer:Currently farmers who dispose of breeding livestock due to drought, flood or excess moisture conditions in certain regions are permitted to defer up to 90 per cent of their sales proceeds until the next year (or a later year in certain conditions).

This deferral is to be extended as of 2014 to disposals of bees, and horses that are over 12 months of age that are kept for breeding.

International Tax Changes

And, Bye Bye Immigration Trusts. If you were not already aware, new immigrants to Canada were eligible for a 60-month tax holiday where assets were contributed to a non-resident trust (commonly referred to as "immigration trusts").

However in a move that has still left me reeling (and calling up many of my new immigrant clients with the bad news), the government decided that this was no longer something they wanted to extend to new immigrants (without allowing for grandfathering any existing immigration trusts).

So any existing immigration trusts must essentially be shut down by the end of 2014.

Thin Capitalization – Back-to-Back Loans

The thin-capitalization rules contain a specific anti-avoidance rule for back-to-back loan arrangements. These rules will be expanded to apply where, among other things, a taxpayer is indebted to an intermediary and the latter's loss exposure on the loan has been limited by certain non-resident persons.

Interest on such loans will be subject to the thin-capitalization rules and may be treated as a non-deductible dividend payment subject to a 25 per cent withholding tax. The expansion of the thin-capitalization rules will apply to taxation years that begin after 2014 and, for withholding tax, to amounts paid or credited after 2014.

Treaty Shopping

Following recent consultations, the Government is proposing a domestic law that would impact benefits derived from treaty shopping, which would be denied if it is reasonable to conclude that one of the main purposes of the transaction (or series of transactions) was to obtain such benefit from a tax treaty (although a safe-harbour presumption will apply in certain situations where a person carries on an active business in a country with which Canada has a tax treaty).

Charities and Non-profits

Estate Donations:The budget proposes that donations made by Will (and certain designated donations) will be deemed to be donations made by the estate, and may be claimed in the taxation year of the estate in which donation is made, an earlier taxation year of the estate or the last two taxation years of the deceased individual.

(Note – the donation must be made within 36 months following the death of the individual. This will apply for 2016 and subsequent taxation years.)

Donations of Ecologically Sensitive Land: For donations of ecologically sensitive land, or easements, covenants and servitudes on such land made after February 10, 2014, the carry-forward period will be extended to ten years.

Donations of Certified Cultural Property: Gifts of certified cultural property acquired as part of a tax shelter gifting arrangement will no longer be measured at fair market value for the purpose of donation tax credits. Rather, the value of such a gift shall be limited to its cost amount to the donor. This restriction applies to gifts made after February 10, 2014.

Employer source deduction remittances

The Budget proposes to reduce the frequency of remittance of source deductions by certain employers. Currently, the frequency of remittance of source deductions depends on the employer's total average monthly withholding amount in preceding calendar years in respect of these source deductions.

Under the Budget proposals, the threshold level of average monthly withholdings for employers required to remit source deductions up to twice per month will be increased to $25,000 from $15,000, while the threshold for those employers required to remit up to four times per month will be increased to $100,000 from $50,000. This measure will apply to amounts to be withheld after 2014.

Joint ventures

The Ministry of Finance intends to propose new joint venture election measures to simplify the GST/HST accounting obligations for joint venture activities.

The new measures, as well as associated anti-avoidance measures, will allow joint venture participants to make the joint venture election as long as the joint venture's activities are exclusively commercial and the participants are engaged exclusively in commercial activities.

The Ministry of Finance notes that it will release related draft legislative proposals later in the year for comments.

Originally published in The TaxLetter, MPL Communications Inc.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Samantha Prasad
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.