Canada: Budget 2017 — Shots Across The Bow — And Some Direct Hits. . .

Last Updated: April 21 2017
Article by Michael A. Goldberg

The lead-up to the March 22, 2017 Federal Budget ("Budget") was filled with fear and trepidation that the Trudeau Liberal Government ("Government") would use the Budget to grab more taxes from Canadians to pay for their platform promises. In particular, in advance of the Budget, there was concern that capital gains inclusion rates were likely to increase significantly, from the 50% inclusion rate to 75% or possibly even more.

The good news for taxpayers — at least for now — is that the Budget did not make any particularly significant tax rate changes at all.2 Unfortunately, that is not to say that the Budget was a tax non-event.

Shots Across the Bow

Tax professionals are always worried about something. It seems to be an occupational hazard, or perhaps a deeply-ingrained socialized character flaw. Perhaps it is that we've adopted Bruce Cockburn's song "The Trouble with Normal (is it always gets worse)" as our theme song — or maybe that's just me. In any case, it appears this Budget has left us with reason to be worried.

Contained deep in the Budget papers,3 under the heading "A Tax System That's Fair for Middle Class Canadians", is a discussion about "Tax Planning Using Private Corporations", setting out the theme that high-income individuals are using corporations to avoid paying their fair share of taxes. Some of the variety of strategies that the government notes it is concerned about include using private corporations to:

  1. allow high-income individuals to shift income to lower-income family members or other non-arm's length persons that can reduce (or even eliminate) overall taxes in a non-arm's length group;
  2. cause passive income to be taxed at much lower tax rates than if the income had been earned personally; and
  3. convert regular income into capital gains, which because of the high tax rates on dividend income can significantly reduce the integrated tax rate in connection with earning income through a corporation as opposed to if such income had been earned personally.

Direct Hits

Some of the direct hits fired in the Budget, while disappointing, were at least foreseeable.

A number of strategies used by taxpayers to manage their tax situations and/or to benefit from certain fact patterns took direct hits in the Budget. For example, the use of straddle transactions (or "straddles", colloquially)4 to manage a taxpayer's taxable income appear to have been effectively eliminated in respect of straddles entered into on or after the date of the Budget. Also, the "de facto control" test, a test that is critical to causing a number of provisions in the Income Tax Act (Canada) ("Act") to become applicable, including the association rules,5 is proposed to be broadened significantly. The change to this test is intended to legislatively override recent case law that the Government obviously did not agree with.6

On the other hand, I don't know any advisors who foresaw the elimination of the so-called "billed-basis accounting" exclusion available to professionals who elect to defer the value of their work-in-process ("WIP"). Assuming that this proposal is enacted, professionals will be required to determine the lesser of the cost and fair market value of their WIP each year ("WIP Amount") and, beginning in the taxation year ending after the particular professional's current taxation year, the professional will be required to take 50% of the WIP Amount at year-end into income for that taxation year (for professionals with calendar year-ends, the relevant period for this first inclusion will be the taxation year ended December 31, 2018). Thereafter, the professional will be required to include the full year-end WIP Amount in income, subject to claiming deductions for the WIP Amount included in the preceding year.7

The government has touted this change as being capable of raising nearly half a billion dollars of tax revenues over the next three years.8 Sadly, I can't imagine that in the current political/class warfare environment the general public will have much sympathy for the professionals being forced to pay these additional taxes.

While the elimination of billed-basis accounting is likely to impact all professionals to a certain degree, it would appear to especially hurt lawyers and accountants, who often carry large WIP balances at year-ends. This is particularly the case for any professionals who work on a contingency basis.

Assuming the billed-basis accounting proposals are enacted, the future battleground for professionals seeking to defer taxation of their WIP will shift to the valuation of WIP, since it is the lesser of the cost and fair market value of the WIP that will be taxable. However, that is an article that can be written9 on another day.


Notice of Ways and Means Motion for 2017 Federal Budget

On April 7, 2017, the Department of Finance released a Notice of Ways and Means Motion and related explanatory notes to implement certain, but not all, provisions of the Federal Budget tabled in Parliament on March 22, 2017.

2017 Newfoundland and Labrador Budget

On April 6, 2017, the government of Newfoundland and Labrador introduced its 2017 Budget. The Budget contained no new taxes or tax increases except for gasoline tax changes.

2017 Prince Edward Island Budget

On April 7, 2017, the government of Prince Edward Island introduced its 2017 Budget. The Budget contained no new taxes or tax increases, but it did contain the following two changes:

  1. A 2% increase of the basic personal amount, spouse or common-law partner amount, and eligible dependant amount to claim a non-refundable tax credit.
  2. A change to protect the provincial education tax credit which would otherwise have been eliminated following the recent elimination of the federal education tax credit.


Appeal from Rule 58 determination of Tax Court judge allowed

The appellant had obtained court orders from two foreign jurisdictions which provided a rectification remedy

re-characterizing dividend payments made as loans, but the Minister of National Revenue refused to accept such re-characterization for Canadian tax purposes. The taxpayer appealed to the Tax Court of Canada which held, on a

Rule 58 application, that the foreign orders did not bind the minister. That decision was based on a finding that, under the Civil Code, homologation was required to render the foreign judgment enforceable in the province of Quebec and to bind the minister. The taxpayer appealed further to the Federal Court of Appeal.

The appeal was allowed. The appellate Court held, in agreement with the appellant, that foreign judgments must be taken as fact, even in the absence of homologation. The Civil Code provides that "an act purporting to be issued by a competent foreign public officer makes proof of its content against all persons. . ." The Court concluded that, as such, factual findings contained within those judgments were facts that could not be disregarded by a Court and that the foreign judgments in question were proof that the corporate resolutions had been rectified to authorize the dividend payments and to transform them into indebtedness. The Court held as well that as the minister was not a party to the foreign proceedings, there was nothing to enforce against the Minister and homologation was therefore a non-issue. On the question of the effect of the foreign orders with respect to the minister, the Court held that the resolution of that question would necessarily depend on the evidence adduced by the parties and the weight ascribed to the foreign orders as facts, pursuant to the provisions of the Civil Code. In the Court's view, such determination was to be made not on a Rule 58 application, but by the Tax Court judge on the basis of the full evidentiary record at his or her disposal. The appellate Court concluded, therefore, that it would allow the appeal, set aside the judgment of the Tax Court and decline to answer the question under Rule 58, and that it would also dismiss the Rule 58 motion before the Tax Court.

To continue reading this article click here

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.

Michael A. Goldberg
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.