Canada: Federal Budget 2015 Tax Highlights

Last Updated: April 22 2015
Article by Crowe Soberman LLP

Joe Oliver presented the "Economic Action Plan 2015" on April 21, his first budget as Finance Minister and three weeks into the fiscal year. In this election year, this budget ("Budget 2015") brings the books back into the black and includes highlighted measures that the Government says will benefit various groups of Canadians including seniors, families and small businesses.

A few highlights of Budget 2015 include:

  • Canada will have a $1.4 billion surplus this year.
  • The Tax Free Savings Account annual limit has been raised to $10,000 from $5,500.
  • The small business tax rate will be cut to 9% from 11% by 2019.
  • Seniors at age 71 will be subject to lower mandatory withdrawal limits from their Registered Retirement Income Funds.
  • There is a new Home Accessibility Tax Credit for seniors and people with disabilities.

Details of the significant tax measures proposed in Budget 2015 are outlined below.


Reduction to the Small Business Tax Rate

  • The small business deduction currently reduces the federal income tax rate from 15% to 11% on the first $500,000 of active business income earned by a Canadian-controlled private corporation.
  • Budget 2015 proposes to reduce the federal small business tax rate from 11% to 9% over a four-year period commencing in 2016, as follows:

      Federal Small
    Business Tax Rate
    Combined Federal and
    Ontario Small Business
    Tax Rate
    2015 11.0% 15.5%
    2016 10.5% 15.0%
    2017 10.0% 14.5%
    2018 9.5% 14.0%
    2019 9.0% 13.5%
  • The reduction in the small business rate will be pro-rated for corporations with non-calendar taxation years.

Accelerated Capital Cost Allowance for Manufacturing and Processing Equipment

  • Budget 2015 proposes to replace the temporary Capital Cost Allowance (CCA) class 29 (which is calculated at 50% on a straight-line basis) for manufacturing and processing equipment with a new CCA class 53 (50% declining-balance rate) for eligible manufacturing and processing equipment purchased after 2015 and before 2026. The "half year rule" will continue to apply in the taxation year when the equipment is first available for use. Eligible assets acquired in 2026 and subsequent years will qualify for the 30% declining balance rate under class 43.

Quarterly Remitter Category for New Employers

  • Currently, an employer qualifies to remit source deductions (i.e. income tax, Canada Pension Plan contributions, and Employment Insurance premiums) to the Government on a quarterly basis if it has an average monthly withholding amount of less than $3,000 and has a perfect compliance record over the previous 12 months.
  • Budget 2015 proposes that new employers who have monthly withholding amounts of less than $1,000 will be eligible to remit on a quarterly basis. Employers will remain eligible for quarterly remitting so long as a perfect compliance record is maintained and their required monthly withholding amounts remain under $1,000. If either of the two conditions is no longer met, the Canada Revenue Agency ("CRA") will modify the employer's remittance frequency requirement in accordance with the existing rules.

Consultation on Eligible Capital Property

  • Budget 2014 announced a public consultation on the proposal to repeal the eligible capital property regime and replace it with a new CCA class.
  • The Government has heard from various stakeholders and continues to receive submissions. All representations will be considered in the development of the rules relating to the new CCA class as well as transitional rules.

Consultation on Active Versus Investment Business

  • The Government will entertain comments from stakeholders that are concerned with the application of the "more than five full time employees" test in determining whether certain business activities, which derive income from property (such as self-storage facilities and campgrounds), are considered active businesses eligible for the low corporate tax rate.

Tax Avoidance of Corporate Capital Gains

  • There are specific anti-avoidance provisions in the Income Tax Act intended to prevent a corporate shareholder from converting what would otherwise be a capital gain on the disposition of shares into a tax-free inter-corporate dividend. Subject to certain exceptions, the rules apply if the purpose of the tax-free inter-corporate dividend was to decrease the fair market value of the shares sold. The dividend is then treated as proceeds of disposition in respect of the shares, or as a gain from the disposition of capital property.
  • Currently, the provisions do not apply to the payment of tax-free inter-corporate dividends that create or increase an unrealized capital loss. In certain situations, a taxpayer could use the unrealized loss triggered from the inter-corporate dividend to shelter accrued capital gains in respect of other properties.
  • Effective after April 20, 2015, Budget 2015 proposes new rules to ensure that the anti-avoidance provisions apply where one of the purposes of a dividend is to effect a significant reduction in the fair market value of any share or a significant increase in the total cost of the dividend recipient's properties.
  • New measures will also ensure that stock dividends cannot be used to circumvent the anti-avoidance provisions discussed above.

Synthetic Equity Arrangements

  • The Income Tax Act currently contains measures, commonly referred to as "dividend rental arrangement rules", which prevent corporate taxpayers from receiving inter-corporate dividends on a tax-free basis where the taxpayer has effectively transferred the economic exposure (i.e. risk of loss or opportunity for a gain) on the underlying shares to a third party. Where the economic exposure has been transferred to a third party through the means of an equity derivative ("synthetic equity arrangement"), and the taxpayer realizes a loss by paying the economic benefit of the tax-free dividend through a "dividend equivalent payment" to that third party, some taxpayers take the position that the "dividend rental arrangement rules" are not applicable. Effective November 2015, Budget 2015 proposes new provisions to amend the "dividend rental arrangement rules" and deny the tax-free nature of inter-corporate dividends received in connection with these arrangements.
  • Certain exemptions will apply to these new rules, including, agreements that are traded on recognized derivative exchanges where one party does not know the counterparty to the agreement, and situations where a taxpayer can establish that a tax-indifferent counterparty has not gained all or substantially all of the economic exposure related to the shares.
  • Budget 2015 proposes a broader alternative "synthetic equity arrangement" regime where the tax status of the counterparty would not be relevant. The alternative regime would be less complex than the one proposed above. The Government has invited stakeholders to submit comments by August 31, 2015 concerning whether the broader measure should be adopted.


Tax-Free Savings Account Annual Contribution Limit Increased

  • Budget 2015 proposes to increase the annual Tax-Free Savings Account (TFSA) contribution limit from the current level of $5,500 to $10,000 beginning in 2015. The contribution limit will remain at $10,000 for subsequent years and will no longer be indexed to inflation.

Home Accessibility Tax Credit

  • Effective for 2016, a new non-refundable tax credit will be available for qualifying individuals who incur costs in an effort to make their homes safer and more accessible.
  • The credit will provide tax relief of 15% on up to a maximum of $10,000 of eligible expenditures related to an eligible dwelling.
  • Qualifying individuals will include those who are 65 years of age or older at the end of a particular year, and persons with disabilities if they are eligible for the Disability Tax Credit at any time in a particular year.
  • Eligible individuals may also claim the credit if they have claimed the spouse or common law partner amount, eligible dependent amount, caregiver amount or infirm dependent amount in respect of a qualifying individual for the year.
  • An eligible dwelling must be the principal residence of the qualifying individual at any time in the year. If the qualifying individual does not have a principal residence in the year, an eligible dwelling will include a principal residence of an eligible individual if the qualifying individual lives there with him or her.
  • Eligible expenditures will include renovations and alterations that allow greater access to or mobility and functionality within the dwelling, or reduce the risk of harm to the qualifying individual such as wheelchair ramps, walk-in bathtubs, wheel-in showers and grab bars. These expenditures will include the cost of labour and professional services, building materials, fixtures, equipment rentals and permits.

Changes to Minimum Withdrawal Factors for Registered Retirement Income Funds

  • Budget 2015 proposes to reduce the minimum withdrawal amount required from a Registered Retirement Income Fund (RRIF) for 2015 and subsequent years. The change is intended to permit seniors to withdraw less from their RRIF in their earlier years, and have access to additional income in later years. This change will also facilitate a more accurate reflection of long-term inflation and interest rates, while allowing seniors to continue to enjoy the tax deferral benefit provided by a RRIF.
  • The new RRIF withdrawal factors begin at 5.28% (previously 7.38%), at age 71, and increase annually to a maximum of 20%, which is now attained at age 95 (previously attained at age 94). There are no proposed changes to the withdrawal factors that apply to those aged 70 and under.
  • An individual who has withdrawn more than the minimum amount from a RRIF in 2015 will be permitted to re-contribute the excess withdrawals to his or her RRIF. Re-contributions will be permitted until February 29, 2016, and those contributions will be deductible in the 2015 taxation year.
  • These proposed rules will also apply to payments from a defined contribution Registered Pension Plan (RPP) or a Pooled Registered Pension Plan (PRPP).

Dividend Tax Credit Adjustment for Non-Eligible Dividends

  • In conjunction with the proposed reduction in the small business tax rate, Budget 2015 proposes to adjust the gross-up factor and dividend tax credit that applies to non-eligible dividends.

    Top Federal Marginal Tax Rate
    on Non-Eligible Dividends
    2015 21.2%
    2016 21.6%
    2017 22.2%
    2018 22.6%
    2019 23.0%
  • The combined federal and provincial tax rate will be dependent on the province in which the individual resides.

Transfer of Education Credits – Effect on the Family Tax Cut

  • The previously announced Family Tax Cut rules reduce the value of the Family Tax Cut for couples who transfer education amounts between themselves.
  • Budget 2015 proposes to revise the Family Tax Cut rules to ensure that spouses transferring education related amounts (Tuition, Education and Textbook Tax Credits) between themselves receive the full amount of the intended benefit from the Family Tax Cut.
  • The CRA will automatically reassess affected taxpayers for the 2014 taxation year to ensure they receive any additional benefits to which they should be entitled under this change.
  • Increase in Lifetime Capital Gains Exemption for Qualified Farm or Fishing Property
  • For dispositions of qualified farm or fishing property occurring on or after April 21, 2015, Budget 2015 increases the Lifetime Capital Gains Exemption to $1 million (previously $813,600). The exemption will be the greater of:

    1. the inflation indexed Lifetime Capital Gains Exemption applicable to the capital gains realized on the disposition of qualified small business corporation shares; and
    2. $1,000,000.


Withholding Taxes for Non-Resident Employees

  • In an effort to reduce the administrative burden associated with obtaining a waiver not to withhold taxes from certain non-resident employees, Budget 2015 provides that no withholdings will be required on payments made after 2015 by a "qualifying non-resident employer" to a "qualifying non-resident employee". A "qualifying non-resident employee" is an employee who is exempt from Canadian income tax by virtue of a tax treaty and who is not present in Canada for longer than 90 days in any 12 month period which includes the payment. A "qualifying non-resident employer" is an employer who is resident in a country that has a tax treaty with Canada, must not carry on business through a Canadian permanent establishment and is certified by the Minister of National Revenue.

Captive Insurance

  • The current Foreign Accrual Property Income (FAPI) rules will be expanded to address certain sophisticated arrangements designed to circumvent the anti-avoidance provisions involving insurance swap transactions. For taxation years beginning on or after April 21, 2015, the FAPI of a foreign affiliate will include income in respect of ceding Canadian insurance risks. In addition, if a foreign affiliate receives a portfolio of insured foreign risks in exchange for the ceding of its insured Canadian risks, the affiliate's FAPI will be equal to the difference between the fair market value of the Canadian risks ceded and the affiliate's costs of acquiring those Canadian risks.


Donations Involving Private Corporation Shares or Real Estate

  • Currently, any gains stemming from donations of publicly-listed securities, ecologically-sensitive land and certified cultural property to qualified donees are exempt from tax. However, realized gains on the donation of private corporation shares or other types of real estate are subject to tax.
  • Budget 2015 proposes to provide taxpayers with an exemption from tax on capital gains on dispositions of private corporation shares and real estate. The exemption will be available under the following conditions:

    • cash proceeds from the disposition of the private corporation shares or real estate are donated to a qualified donee within 30 days after the disposition; and
    • the private corporation shares or real estate are sold to a particular purchaser that is dealing at arm's length with both the donor and the qualified donee that received the cash proceeds.
  • The exempt portion of the capital gain will be computed as the total cash proceeds donated divided by the total proceeds from the disposition of the shares or real estate.
  • Several anti-avoidance measures will be introduced to disallow the exemption if, within five years after the disposition, the donor (or a person not dealing at arm's length with the donor):

    • reacquires (directly or indirectly) the property that was sold;
    • acquires shares substituted for the shares that had been sold; or
    • where shares were sold, said shares are subsequently redeemed and the donor does not deal at arm's length with the corporation at the time of the redemption.
  • These new measures will apply to donations made in respect of dispositions occurring after 2016.

Investments by Registered Charities in Limited Partnerships

  • Generally, charitable organizations and public foundations are not permitted to engage in business activities that are outside of their purpose. Private foundations are not permitted to engage in any business activities.
  • A person holding a partnership interest is generally, under provincial law, considered to be carrying on the business of the partnership. Given the restrictions on the carrying on of business, charitable organizations and private/public foundations are not permitted to hold an interest in a partnership for investment purposes. Since partnerships are commonly used structures to invest in the private market, charities are missing out on potentially good investment opportunities.
  • Budget 2015 proposes to amend the Income Tax Act to provide that a registered charity will not be considered to be carrying on a business solely because it acquires or holds an interest in a limited partnership.
  • The following conditions must be met for the new measures to apply:

    • the charity, together with all non-arm's length entities, holds 20% or less of the limited partnership; and
    • the charity deals at arm's length with each general partner of the limited partnership.
  • The current rules relating to excess corporate holdings by a charity or foundation will be amended to "look through" limited partnerships. The non-qualifying security rules and the loanback rules that apply to donations of shares will also apply to donations of interests in limited partnerships.
  • These new measures will apply to investments in limited partnerships made after April 21, 2015.

Gifts to Foreign Charitable Foundations

  • Canadian registered charities are "qualified donees" under the Income Tax Act and donations made to them by Canadian taxpayers are eligible for the donation tax credit or deduction (for corporations). In addition, Canadian charities are permitted to make gifts to other qualified donees.
  • Budget 2015 proposes to amend the Income Tax Act to allow foreign charitable foundations to be registered qualified donees if they receive a gift from the Government of Canada and if they are pursuing activities related to disaster relief or urgent humanitarian aid or are carrying on activities in the interest of Canada.
  • This measure will apply on Royal Assent to the enacting legislation.


Repeated Failure to File Penalty

  • Where a taxpayer fails to report income in a taxation year and has also failed to report income in any one of the three preceding taxation years, a penalty equal to 10% of the omitted income is incurred. This penalty is often disproportionate to the corresponding tax liability of the unreported income.
  • Budget 2015 proposes to amend the repeated failure to report income penalty to apply only when the amount of income omitted is at least $500. The penalty will be equal to the lesser of:

    1. 10% of the amount of income not reported; and
    2. 50% of the difference between the understatement of tax (or the overstatement of tax credits) related to the unreported income and any amount of tax paid in respect of the unreported income (e.g. tax withheld by an employer).

T1135 Form and Reporting Requirements for Foreign Assets

  • Budget 2015 proposes to ease the compliance measures in respect of reporting foreign assets. The CRA is currently developing a new simplified foreign asset reporting system that will be used when the cost of a taxpayer's specified foreign property is less than $250,000 in a reporting period. The T1135 Form in its existing format will continue to apply when the cost of a taxpayer's specified foreign property is in excess of $250,000 in a reporting period.

Adjustments to Assessed Amounts Under Appeal

  • A recent Federal Court of Appeal decision (Geoffrey Last v. The Queen) held that each source of income is to be considered in isolation and the assessed amount of each source cannot be increased after the reassessment period has expired. This is contrary to the CRA's position and interpretation.
  • As a result, Budget 2015 proposes to amend the Income Tax Act to clarify that the CRA or a court can increase or adjust an amount included in an assessment that is under objection or appeal at any time, as long as the total amount of the assessment does not change.

Employment Insurance Premium Reduction

  • Budget 2015 proposes to reduce the Employment Insurance (EI) premiums in 2017. The EI premium rate is expected to decrease from $1.88 to $1.49.

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.

Crowe Soberman LLP
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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions