The 2016 federal budget is scheduled to be tabled on March 22.
So, what tax measures can we expect to see in this year's
Following the Liberal party's win in the October federal
election, the government acted quickly to implement a number of the
tax measures that were included in their election platform, as well
as some new measures, specifically:
a 4% increase in the top federal rate of tax (from 29% to 33%)
for taxable income over $200,000;
a reduction in the second federal tax bracket rate from 22% to
a reduction in the annual Tax-Free Savings Account (TFSA)
contribution limit from $10,000 to $5,500; and
some unexpected changes to several tax measures affecting
Canadian-controlled private corporations (CCPCs) and other private
As part of its campaign, the Liberal government commented that
it would conduct a wide-ranging review of the tax expenditures that
now exist, with the objective of looking for opportunities to
reduce tax benefits that help individuals with income of more than
$200,000 per year. Although not an expenditure, the first bullet
point above is clearly targeted at this group. It's not clear
what additional measures, if any, might be proposed in this
Nevertheless, it is expected that the 2016-17 federal budget
will fulfil a number of other promises that were included in the
Liberal election platform. Some of these tax changes are very
likely, as it has already been announced that these changes will be
forthcoming. For example, the Liberals have indicated that they
intend to eliminate the family tax cut for the 2016 taxation year
and replace the Universal Child Care Benefit (UCCB) with a new
income-tested Canada Child Benefit.1 Changes to the
stock option rules are also expected. It remains to be seen how
many of the other measures will be introduced.
As with any budget, there's no telling what types of changes
the government will include.2 However, since proposed
measures often take effect on budget day, the best course of action
is to address all tax-sensitive transactions before that day. For
example, there is some conjecture that there may be an increase in
the capital gains inclusion rate (possibly from 50% to 66 2/3% or
75%). Although we can't comment on any likelihood that this
rate will increase, certain pre-budget planning opportunities
should be considered where a significant capital asset sale is
contemplated post-budget date.
There are also a number of outstanding measures announced by the
previous government in last year's federal budget. These
amendments to subsection 55(2) to potentially increase the
number of situations where a tax-free inter-corporate dividend
could be re-characterized as a capital gain;
an exception to the Regulation 102 employee withholding tax
rules when certain conditions are met (although these rules have
not yet received Royal Assent, the CRA has started to administer
proposals to exempt from tax capital gains realized on the
disposition of shares of private corporations or real estate where
the cash proceeds of disposition are donated to a qualified donee
within 30 days after the disposition (applicable to donations made
in respect of dispositions occurring after 2016);
amendments to allow a registered charity to hold an interest in
certain limited partnerships; and
a tightening of the anti-avoidance rules for captive insurance
It will be interesting to see if this budget includes any
additional commentary on any of the above tax measures.
The following chart summarizes the possible tax measures that
could be included in the upcoming federal budget.
Please contact one of our tax practitioners if you would like to
discuss these possible tax changes and the implications they could
have on you or your business.
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1 This change will be effective July 1, 2016.
2 The House of Commons Standing Committee on Finance is
conducting its pre-budget hearings February 16th – 19th.
Their report is expected soon after.
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.
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