Those of us in financial services in Canada are holding our
breath for March 22, when Trudeau's Liberal government is set
to unveil the 2016 federal budget.
The budget comes on the heels of
two major tax bracket changes already in motion and amid buzz
of the deficit potentially ranging in the tens of billions.
Accordingly, Canadians are eager to know how they'll be
affected, so we took a look at three hot-button budget issues to
watch that could influence your finances and tax planning.
A loss for capital gains recipients?
There's a lot of concern within the tax community about an
increase to the inclusion rate for capital gains. Right now, if you
were to incur a capital gain on a stock, for instance, you would
pay taxes on half of it. In the forthcoming budget, there's a
possibility that rate could leap to two-thirds or even
This presents an opportunity for proactive planning. Consider
taking advantage of the current capital gains rates prior to the
budget's release, as we do anticipate a change of some sort. In
particular, those who incur large capital gains stand to benefit
from strategic planning, but new measures would likely affect any
business owner or individual with a stock portfolio.
Much ado about the small business deduction eligibility
This is another area that has attracted attention, and although
I'm cautiously skeptical, it's certainly one to watch as
the potential changes could be radical. Currently, the small
business deduction (SBD) entitles eligible corporations, including
professional corporations such as those owned by dentists, doctors
and lawyers, to a lower tax rate on the first $500,000 of active
business income. But there's concern the budget could shake
this up and target high-income earners.
For instance, there is a question around why the SBD is
available to a doctor with only a receptionist and a nurse, as this
does not really fit the bill of a "small business." Keep
in mind the ability for professionals to legally incorporate (and
thus be eligible for the SBD) is fairly recent, and CRA has
expressed concerns over the impact.
To this end, there has been speculation the federal government
might follow in Quebec's footsteps, adopting a model for
eligibility which considers the number of employees in the
Unlike capital gains, there's not much to be realized by
preparing for a potential change to the SBD qualifications;
however, you can employ strategies to mitigate adverse tax
consequences if changes are implemented.
In the vein of the recent
Ontario budget, expect to see the federal government reduce
legislated tax incentives to increase discretionary incentives. New
grants would likely focus on areas such as job creation, clean
technology and pre-commercialization in targeted regions like
Alberta, Southwestern Ontario and Quebec.
For instance, I can foresee a reduction in the Scientific
Research and Experimental Development (SR&ED) Program or the
Apprenticeship Job Creation Tax Credit, with funds diverted to one
or two new political funds to encourage job creation in a specific
industry. (If there is a clawback to SR&ED, the manufacturing
sector would likely be most affected.)
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