Canada: Budget Season 2019: Spending Across The Board With Small Tax Changes

Last Updated: May 27 2019
Article by Joseph Gill

The purpose of this blog post is to provide a high-level review of the key items coming out of both the Federal Budget (released on March 19, 2019), and the Saskatchewan Budget (released on March 20, 2019). This post is not exhaustive of all measures proposed in the Budgets but rather takes a focus from the perspective of a business owner or entrepreneur. As a result, the measures discussed are those likely to have the most impact on the business sector.

No Tax Rate Changes

Neither the Saskatchewan nor the Federal budgets contained any changes in either personal or corporate tax rates.

Employee Stock Options

For "large, long-established, mature [companies]" (term not yet defined) granting in excess of $200,000 of options in a given year to any person, the Federal Budget introduces new changes which remove the tax preference previously given to options. Using an example:

Grant Date Exercise Date Sale Date
CEO is granted options to acquire 100,000 shares of Corp at a price of $50 per share.

CEO exercises all her options at a time when the price per share is $70 (but she only pays $50 per share).

CEO sells all her 100,000 optioned shares for $80 per share.



Tax Implications
No tax implications but total value of "optioned shares" is $5,000,000 (i.e. 100,000 x $50)







CEO incurs taxable benefit of $2,000,000 (i.e. 100,000 shares x $20 benefit). However, benefit is likely eligible for a deduction so only 50% is taxable (i.e. $1,000,000).

If Corp is controlled by Canadians, CEO won't have to pay the tax on the benefit until the Sale Date.

CEO incurs capital gain equal to $1,000,000 (i.e. $80 per share sale price less $70 per share acquisition price from Exercise Date). Only $500,000 of this amount is taxable.

Assuming the CEO was able to defer the taxation of the benefit until the Sale Date, the CEO will also have to pay a taxable benefit equal to $1,000,000.

Tax Implications (Proposed System)
Same as current system.


















The 50% deduction is only available on 4,000 of the options (i.e. $200,000 worth of "optioned shares"). This results in a $80,000 taxable benefit.

The remaining 96,000 options will not benefit from the 50% deduction and so will be fully taxable. This means $1,920,000 will be fully taxed as a
benefit (an increase of $920,000 in taxes over the current system).

Proposed system is unclear whether the $1,920,000 benefit would also benefit from the deferral to the Sale Date (as it would with the current system).


Same capital gain result as under current system. Also, same taxable benefit results as under current system (with exception that amount of taxable benefit will be larger).














Further details will be released before the summer of 2019. Thankfully, any changes will apply on a go-forward basis and will not apply to options granted before the legislative proposals.

Greater Access to Scientific Research & Experimental Development (SR&ED)

SR&ED is a federal tax incentive that provides a tax credit to companies based on their research & development spend. Specifically, the SR&ED rules provide a refundable investment tax credit to Canadian-controlled private corporations (CCPCs) at a rate of 35% on qualifying expenditures up to $3 million. The expenditure limit is phased out based on the taxable income and taxable capital employed in Canada of the taxpayer (and members of a commonly-controlled group).

The Federal Budget proposes to remove taxable income as a factor in determining a CCPCs expenditure limit for purposes of SR&ED. As a result, CCPCs with taxable capital of up to $10 million will benefit from unreduced access to SR&ED. CCPCs with taxable capital in excess of $10 million will be entitled to a reduced SR&ED credit, and the credit will be eliminated for CCPCs with taxable capital of $50 million or more.

This measure applies to tax years that end on or after March 19, 2019.

Farmers and Fisherman Small Business Deduction Fix

Under prior rules, farmers and fishermen who sold to cooperatives in which they had an interest (e.g. grain elevator) would be prevented from claiming the federal small business deduction on income generated from that sale. The Federal Budget provides a fix here: retroactive to tax years that begin March 21, 2016, farmers' or fishers' income would be eligible for the small business deduction if their produce is sold to an arm's length corporation.

Changes to Cannabis Taxation

The Federal Budget proposes to subject three new classes of cannabis products (edibles, extracts, and topicals) to excise duties based on the quantity of total tetrahydrocannabinol (THC) contained in the final product. This THC-based duty will be imposed at the time of the packaging of the product and becomes payable when it is delivered to a non-cannabis licensee. The combined federal-provincial-territorial THC-based duty is proposed to be $0.01 per milligram of total THC.

These changes are proposed to come into force on May 1, 2019.

Potash Production Tax Changes

Saskatchewan levies a Crown royalty on potash produced from Crown lands and a Potash Production Tax (PPT) on potash produced from both Crown and freehold lands in the province. The base payment component of the PPT is currently reduced by (a) the amount of Crown and freehold royalties paid, and (b) the amount of the Saskatchewan Resource Credit (equal to 0.75 percent of the value of potash sales).

The Saskatchewan Budget proposes that (a) Crown and freehold royalties will no longer be deductible in determining the base payment or the profit tax, and (b) the Saskatchewan Resource Credit is eliminated for potash production.

This measure is effective April 1, 2019.

Zero Emissions Vehicles

The Federal Budget proposes that zero-emission vehicles be eligible for a full tax write-off in the year they are put in use. Qualifying vehicles will include (a) electric battery, (b) plug-in hybrid (with a battery capacity of at least 15 kWh), or (c) hydrogen fuel cell vehicles, including light-, medium- and heavy-duty vehicles.

Immediate expensing will apply to eligible vehicles purchased on or after March 19, 2019 and before January 1, 2024. Capital costs for eligible zero-emission passenger vehicles will be deductible up to a limit of $55,000 plus sales tax (with the limit to be reviewed annually to ensure it is appropriate as market prices change).

Entrepreneurial Funding

The Federal Budget proposes providing funds to the following programs:

  • Coding Skills – $60M over 2 years (starting in 2019-20) to support the CanCode Program overseen by Innovation, Science and Economic Development Canada. This program supports opportunities for K-12 students to learn digital skills including coding, data analysis, and digital content development.
  • Business Partnerships – $150M over 2 years (starting in 2020-21) to augment the existing Canada Student Work Placement Program with funding to create partnerships with innovation businesses to create approximately 20,000 work-integrated learning opportunities.
  • Global Talent Stream – Proposal to make the Global Talent Stream Programpermanent by investing $35.2M over 2 years (starting in 2019-20) with $7.4M per year ongoing. The program allows Canadian employers to hire highly-skilled foreign workers in an efficient manner.
  • Futurpreneur Canada – Funding of $38M over 5 years (starting in 2019-20). Futurpreneur provides entrepreneurs with mentorship, learning resources and start-up financing. $3M of this funding will be specifically targeted to Indigenous entrepreneurs.
  • Tourism Funding – Funding of $58.5M over 2 years (starting in 2019-20) to the Regional Development Agencies for the creation of a Canadian Experiences Fund. That fund would support Canadian businesses and organizations seeking to create, improve or expand tourism-related infrastructure—such as accommodations or local attractions—or new tourism products or experiences. The investments would focus on five categories: (1) tourism in rural and remote communities, (2) Indigenous tourism, (3) winter tourism, (4) inclusiveness, specifically for the LGBTQ2 community, and (5) farm-to-table tourism, which is also known as culinary tourism.

There is also funding of $5M set aside for Destination Canada for a tourism marketing campaign that will help Canadians to discover lesser-known areas, hidden national gems and new experiences across the country

  • Indigenous Business Development – Several measures are proposed here:
    • Funding of $78.9M over 5 years (starting in 2019-20) and $15.8M per year ongoing, to support Indigenous entrepreneurs and economic development through the<<a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://www.aadnc-aandc.gc.ca/eng/1100100033417/1100100033418" target="_blank">Community Opportunity Readiness Program. This program assists with building business plans, expanding existing Indigenous led-businesses, and launching new Indigenous-led start-ups.
    • Funding of $50M over 5 years (starting in 2019-20) to establish Métis Capital Corporations, which will support the start-up and expansion of small and medium-sized Métis businesses.
    • Funding of up to $100M to the Social Finance Fund and the Business Development Bank of Canada to support the Indigenous Growth Fund. The fund provides capital to Indigenous entrepreneurs.
    • Funding of $17M over 3 years (starting in 2020-21) to expand the Aboriginal Entrepreneurship Program. This program provides a range of services and supports to Indigenous businesses in Canada.
  • Musical Entrepreneurs – Funding of $20M over 2 years (starting in 2019-20) to the Canada Music Fund so that the fund can enhance its support for the production, promotion and distribution of Canadian music.
  • Performing Arts Entrepreneurs – Funding of $16M over 2 years (starting in 2019-20) to the Canada Arts Presentation Fund. The fund supports not-for-profit professional performing arts organizations—including festivals and performing arts series—in all regions of the country.
  • Cyber Security – Funding of $80M over 4 years (starting in 2020-21) to support multiple Canadian cyber security networks across Canada that are affiliated with post-secondary institutions. The networks—to be selected through a competitive process—will expand research, development and commercialization partnerships between academia and the private sector, and expand the pipeline of cyber security talent in Canada.

Tax Enforcement Funding

The federal Budget proposes $65.8M over 5 years to update Canada Revenue Agency's (CRA) IT systems. There is an additional $50M of funding over 5 years to create four new dedicated residential and commercial real estate audit teams in high-risk regions to ensure tax compliance.

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 Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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