Canada: A Closer Look: Fasken Experts Take A Deep Dive Into The Federal Fall Economic Statement

Last Updated: January 14 2019
Article by Andrew House and Matthew Welch

Far-reaching impacts on the Canadian economy and an attempt to return to competitiveness.

With less than a year to go before the next federal election, much has been made of the politics of the Finance Minister's Fall Economic Statement. Just as important is the statement's practical impact on Canadian businesses and the economic dimensions of this series of announcements.

On November 21, Canada's Minister of Finance provided Parliament with his Fall Economic Statement 2018 (Statement). Aside from the annual Federal Budget itself, the Statement is the federal fiscal calendar's most important spending announcement. Not only does it contain hundreds of millions of dollars in new spending aimed at the business community, it also hints at regulatory changes that will reverberate across all sectors of the economy. Sectors impacted are as diverse as the agri-food and aquaculture industries, extractive industries and banking.

Legal experts at Fasken take a closer look at the statement and its implications for business clients:

Opportunities to help shape the regulatory environment

The changes outlined in the Statement will have a long-term impact on the cost of doing business in Canada. Various industries, including the agri-food, health and biosciences, and transportation, will be impacted almost immediately, The government has also pledged a wide-ranging review of regulatory burdens in other industries. Such a review–if done meaningfully–has the potential to lower the cost of doing business in multiple sectors, rendering Canada more competitive and a more attractive destination for needed investment.

The Statement details 23 measures that will come into effect "as quickly as possible."1 These include:

  • Various changes to agri-food regulation, including adjustments to fertilizer rules, reducing barriers to internal trade and changing beer compositional standards to allow for more inventive choices;
  • Amending regulations with respect to the commercial application of drones and support for the adoption of truck platooning technologies; and
  • Reducing record retention requirements for clinical trials and providing new regulations for wearable medical device software.

The Statement also puts in place an institutional framework largely reflecting the Canadian Chamber of Commerce's wish list, laid out in the Chamber's May 2018 report.2

Reflecting that list, the Statement promises to create a regulatory body styled as the "External Advisory Committee on Regulatory Competitiveness". The creation of this entity, combined with promised regulatory review, could finally create the internal momentum required to begin the march back to competitiveness the Government of Canada has needed for some time.

This Advisory Committee, along with the newly announced Centre for Regulatory Innovation, would provide the private industry with dedicated fora in which to advance views on effective regulation and deregulation. "Interested businesses in all federally-regulated industries should plan now to make submissions and advocate for regulatory change," says Dan Brock of the Government Relations Group at Fasken. "The Centre for Regulatory Innovation, in particular, is meant to be business-facing. Taking advantage of the opportunity to engage government on regulatory change should be on every federally-regulated business' priority list."

Introduction of New Accelerated Capital Cost Allowance Incentives

In a clear response to the lowering of the corporate tax rate (and other corporate tax measures) in the United States, the Statement includes new measures that will lower the corporate tax otherwise payable by some corporations in Canada. However, these measures will not lower actual corporate tax rates. Rather, the proposed changes will allow corporations to accelerate the tax depreciation of certain capital investments, thus lowering the effective corporate tax rate (at least in the earlier years).

Proposed changes in the Statement will allow businesses to:

  • immediately write off the cost of machinery and equipment used for the manufacturing or processing of goods;
  • immediately write off the full cost of specified clean energy equipment; and
  • rely upon an accelerated investment incentive, which will allow all businesses, making capital investments, to claim an accelerated capital cost allowance (i.e. a business will be permitted to deduct larger amounts of depreciation expenses sooner rather than later).

The accelerated investment incentive effectively triples the current first-year capital cost allowance rate for all tangible capital assets (and some intangible capital assets, including patents and other intellectual property). The Statement provides that these changes will apply to qualifying assets acquired after November 20, 2018. However, the changes will be gradually phased out starting in 2024. The changes will no longer have effect after 2027.

The Department of Finance's view is that the above changes will encourage businesses to invest greater amounts of after-tax profits in new capital assets (the Statement further provides that Canadian corporations' after-tax profits are near record highs). For example, according to the Statement, the above changes will, respectively, promote: (i) the competitiveness of Canada's manufacturing and processing sector, including competitiveness vis-à-vis the same sector in the United States; (ii) Canada's clean technology sector and the shift to a "cleaner economy"; and (iii) businesses' ability to quickly recover the initial costs of investments in capital assets which will, in turn, encourage greater amounts of investment, by businesses, in capital assets. The Statement further emphasizes that the above changes will lead to a reduction in Canada's marginal effective tax rate from 17% to 13.8% - a rate that would be the lowest among G7 countries.

"Canadian businesses that were considering making new investments, or shifting current investments, to the United States or other countries should take a closer look at the proposed accelerated CCA rules," says Kevin Yip of the Tax Law practice group at Fasken. "Although temporary, these incentives should make capital investments in Canada more attractive, especially in the manufacturing, technology, telecommunications and clean energy industries."

Regulation of financial institutions

In addition, the Statement references proposed amendments to the Bank Act that were recently introduced in Bill C-86. These changes were discussed in a recent bulletin by Stephen D. A. Clark and Craig Bellefontaine of the Financial Institutions practice group at Fasken.3 This legislation contains the most sweeping consumer protection provisions ever proposed for Canadian banks.

The three main areas dealt with in Bill C-86 are:

  • enhanced requirements related to consumer protection and the sales practices of banks, including the need for banks to establish a committee of the Board of Directors responsible for consumer protection, and the consolidation of a number of consumer protection provisions of the Bank Act into a single part of that Act;
  • the amendment of certain provisions of the Bank Act in areas of corporate governance, business practices, public reporting, disclosure of information, and access to basic banking services; and
  • adjustments to certain provisions of the Bank Act that deal with the investment powers provided to banks, privileged information made available to OSFI, and electronic consent.

It was hoped that amendments contained in Bill C-86 would address some of the outstanding issues created by the Supreme Court of Canada's decision in A Canadian Financial Institution v. Marcotte,4 which dealt with the question of which level of government has constitutional authority over consumer protection issues involving banks. However, the amendments appear to be driven primarily by the Financial Consumer Agency of Canada's recent review focusing on the business practices related to the sale of products and services by federally regulated financial institutions.

The Statement includes an announcement that the Financial Consumer Agency of Canada will be conducting a review to assess the complaints handling processes of Canada's banks, as well as the effectiveness of external complaints bodies.

In 2010, the previous Conservative Government made amendments to the Bank Act that require banks to belong to an external complaints body approved by the Commissioner of the Financial Consumer Agency of Canada. In 2013, regulations were introduced that set out requirements that must be met by external complaint bodies, including standards for independence, timeliness and transparency.

According to Koker Christensen of the Financial Institutions Group at Fasken: "The question of whether a bank should be allowed to choose its own umpire has attracted attention over the years, most recently with a Canadian financial institution's September announcement that it would no longer be using the Ombudsman for Banking Services and Investments to mediate disputes with its customers. Instead, it is switching to ADR Chambers Banking Ombuds Office."

Banks and consumers alike will take an interest in the Financial Consumer Agency of Canada's review of the practice of banks using external complaints bodies. Depending on its outcome, the review could have wide-ranging impacts on how banks' relationships with consumers are regulated. In addition, the Statement announced that the Financial Consumer Agency of Canada will engage with banks and seniors' groups to create a code of conduct to guide banks in their delivery of services to seniors.

Measures to encourage investment in Mining, Oil and Gas

Finally, the Statement also contains measures that will be of interest to those involved in the mining, and oil and gas industries. These measures: renew the exploration tax credit; and allow taxpayers to claim immediate deductions with respect to certain Canadian development expenses and oil and gas expenses.

The 15% Mineral Exploration Tax Credit helps junior exploration companies raise capital to finance early stage mineral exploration. From 2010 to 2016, mining companies raised, on an annual basis, an average of approximately $505 million in equity using this tax credit.

Given the continuing challenges facing junior mining companies, the Government has decided to support mineral exploration efforts by extending the credit until March 31, 2024. By announcing a five-year extension, it is hoped that the extension will reduce uncertainty, facilitate planning, and help junior exploration companies raise more equity. This measure is expected to result in a net reduction in federal revenues of approximately $365 million over the 2019-20 to 2023-24 fiscal periods.

The Statement also provides an additional first-year Canadian development expense deduction for a taxpayer's "accelerated Canadian development expenses" of 15% for taxation years ending before 2024, and 7.5% for taxation years ending after 2023. This amount will be added to taxpayers' cumulative Canadian development expenses at the end of the year, so as to determine the total amount deductible. For this purpose, an accelerated Canadian development expense is generally a Canadian development expense that is incurred after November 20, 2018 and before 2028. This includes development expenses renounced under flow-through share agreements entered into after November 20, 2018.

Finally, the Statement provides for an additional first-year oil and gas expense deduction for taxpayers' "accelerated Oil and Gas property expenses" of 5% for taxation years that end before 2024, and 2.5% for taxation years that end after 2023. This amount can be added to a taxpayer's cumulative Canadian oil and gas property expenses at the end of the year, so as to determine the total amount deductible. For this purpose, an accelerated Oil and Gas property expense is generally a Canadian Oil and Gas property expense that is actually incurred after November 20, 2018 and before 2028.

"Taken together, these measures are designed to counteract a general impression which has been forming in the extractive sector that this is a federal government more concerned with being seen to do the right thing environmentally than actually finding balance between the environment and the generation of growth and preservation of jobs," says Claude Jodoin of the Tax Law Group at Fasken. "It's the beginning of a business-friendly counter-balance to the impact of a price on carbon."

Footnotes

[1] Fall Economic Statement 2018, p. 75.

[2] Canadian Chamber of Commerce, "Death by 130,000 cuts: Improving Canada's Regulatory Competitiveness" (May 2018).

[3] Craig Bellefontaine and Stephen D.A. Clark, " Federal Government Introduces Significant New Consumer Protection Framework for Customer of Banks - Bill C-86" (November 7, 2018).

[4] "A Canadian Financial Institution" v. Marcotte, 2014 SCC 55.

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 Mondaq.com.

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

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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