Canada: Canadian Mini-Budget Tax Relief: More And Faster Than Promised

Last Updated: October 25 2000
Article by David W. Steele


In his October 18, 2000 Economic Statement and Budget Update, Canada's Finance Minister, Paul Martin, not only reaffirmed his commitment to on-going tax reductions, he also increased certain reductions and advanced their effective dates.

The public debt remains a concern. Three consecutive years of surpluses, the first time in 50 years, have been dedicated to reduction of the national debt – accounting for a debt reduction of $18.7 billion. Going forward, Mr. Martin anticipates a $10 billion debt reduction for the 2000/2001 fiscal year, lowering the debt to a still overwhelming $555 billion.

Mr. Martin did:

  • increase and accelerate personal tax reductions;
  • accelerate corporate tax rate reductions;
  • slash the capital gains income inclusion rate to 50%; and
  • promise tax deferral opportunities on certain foreign corporate reorganizations and share exchanges.

Mr. Martin did not:

  • accelerate planned increases in RRSP and pension plan contribution limits currently scheduled for nominal increases in 2003 and 2004; or
  • modify the $500,000 capital gains exemption for dispositions of qualifying family farms and shares of private Canadian companies.

Personal Tax Measures

Personal Tax Rates

The economic statement accelerates and increases personal tax cuts announced in last February's budget. Effective January 1, 2001:

  • the lowest and middle rates will drop from 17% and 25% to 16% and 22%, respectively, and the taxable income thresholds at which rates cut in will be increased; and
  • the top rate of 29%, now applying to taxable incomes above $60,009, will:
  • drop to 26% on taxable incomes between $61,509 and $100,000; but
  • continue to apply to taxable incomes exceeding $100,000.

The changes will result in the tax rates shown in the following table.

Effect Of Economic Statement On Federal Marginal Rates



Capital Gains*

Canadian dividends

Interest & ordinary income

2001 Rates










































2000 Rates










































* Rates for 2001 apply to dispositions any time in the year. "Pre" rates for 2000 apply to dispositions between February 27 and midnight, October 17, while "post" rates apply to dispositions after October 17.

The thresholds at which the rates apply will be subject to ongoing adjustments by virtue of indexation.

Commensurate with the tax rate reduction, the rate applying to the calculation of non-refundable tax credits and the alternative minimum tax will also drop to 16% from 17%.


The economic statement eliminates the 5% surtax effective January 1, 2001, instead of within 5 years, as proposed in the 2000 budget.

Top Combined Personal Marginal Rates For 2001* (In Decreasing Order)


Capital gains

Canadian dividends

Interest & ordinary income





British Columbia








Prince Edward Is.




Nova Scotia




New Brunswick
























Northwest Territories












Federal only




* The top bracket is $100,000 everywhere, except in New Brunswick (where the provincial surtax creates a bracket at $101,359 or more.) Rates include all federal, provincial and territorial income taxes and surtaxes. The final details of the provincial component of the taxation of Canadian dividends are not yet available for some provinces, and the rates shown may change.

Federal Tax Payable On Interest And Ordinary Income*

Taxable Income


2001 before mini-budget

2001 after mini-budget





























































* Actual amounts will vary depending on available credits, etc.

Child Tax Benefit

The economic statement further enhances the Canada Child Tax Benefit (CCTB), including the National Child Benefit (NCB):

  • the NCB will be increased by $300 per child;
  • the family income threshold at which the NCB supplement is fully phased out, and the CCTB base benefits begin to be phased out, will be increased to $32,000 in 2001; and
  • the reduction rate applicable to CCTB benefits will be reduced to 4% (2% for one-child families) from 5% (2.5% for one-child families).

Caregivers And Infirm Dependents

Effective 2001, tax credits available to persons with severe and prolonged disabilities will increase to $960 from $730. Tax credits for caregivers and infirm dependents as well as the supplement to the disability tax credit will increase to $560 from $406.

Education Tax Credit

The economic statement increases the education tax credit available to post-secondary students as follows:


Per-month tax credit




Full-time students



Part-time students



CPP/QPP For The Self-Employed

For taxation years ending after 2000, self-employed individuals will be permitted to deduct one-half of Canada Pension Plan or Québec Pension Plan contributions paid for their own coverage. The non-deductible half will continue to qualify for a tax credit.

Employee Stock Options

Consistent with the reduction in the capital gains inclusion rate (highlights following), the deduction available for stock option benefits is increased to one-half for benefits includable in income after October 17, 2000. The net effect is that one-half of the stock option benefit is subject to tax.

Capital Gains


Following last February's reduction in the capital gains inclusion rate from three-quarters to two-thirds for gains realized after February 27, 2000, the economic statement further reduces the inclusion rate to one-half for gains realized after October 17, 2000. These changes are summarized below:


Inclusion rate

Date of dispostion

Before February 28, 2000



After February 27, 2000 and before October 18, 2000

66 2/3%


After October 17, 2000


Loss Carryovers

The treatment of net capital losses carried over from other years will parallel the treatment described in the PricewaterhouseCoopers Tax Memo 2000 Federal Budget: Commitments Made – Promises To Keep.

Illustrative Computation

A taxpayer having capital gains and losses in 2000 is potentially subject to three different inclusion rates as the example following (extracted from the economic statement) illustrates. The determination of the net taxable capital gain or allowable capital loss for that year can become a complicated exercise to the extent the gains and losses fall in differing periods during the year.

Example – Determination Of Net Taxable Gain

Doug sells shares in ABC Corporation on February 1, 2000, for a gain of $600. He later sells shares in XYZ Inc. on May 15, 2000, for a loss of $500. Finally, he sells more shares of ABC Corporation on December 1, 2000, for a gain of $400.

Step 1

Doug determines separately his net gains and losses for the periods January 1-February 27, February 28-October 17, and October 18-December 31. For the first period, he has a net gain of $600; for the second period, he has a net loss of $500; for the third period, he has a net gain of $400.

Step 2

Doug calculates his interim net gain and interim inclusion rate for the period January 1-October 17. His interim net gain is $100 (the $600 gain less the $500 loss). Because the net gain from the first period is larger than the net loss from the second period, Doug's interim inclusion rate is three quarters.

Step 3

Doug now uses the interim gain of $100 and the interim inclusion rate of 75% for the period January 1-October 17, along with the net gain of $400 for the period October 18 to December 31 to determine his inclusion rate for the year. Doug uses the following formula:

(C x D + 50% x E) / (D+E)

Where C = 75%, D = $100, E = $400

Inclusion Rate = (75% x $100 + 50% x $400) / ($100 + $400) = 55%

To determine his taxable capital gain for the year, Doug applies this inclusion rate to his net gain for the year of $500 (i.e., the $100 interim net gain plus the $400 net gain for the period October 18 to December 31).

Taxable Capital Gain = 55% x $500 = $275

Charitable Donations

Under existing legislation, the capital gains inclusion rate is reduced by one-half for capital gains arising from certain donations of appreciated publicly traded securities and ecologically sensitive property to a charity. For 2000, the inclusion rate for such capital gains will be based on one-half of the capital gains inclusion rate for the period in which the donation occurred. For 2001 (and future years, where applicable), the inclusion rate will be one-half of the capital gains inclusion rate for that year.

Rollovers For Investments In Small Business

February's budget provided individuals (but not trusts) a rollover of capital gains on the disposition of eligible small business investments when the proceeds of dispositions are reinvested in other small businesses. Effective October 18, 2000, the following changes will broaden access to the rollover:


2000 Budget

Economic Statement

Original investment on which the deferral is available





Reinvested amount that qualifies for deferral


Asset limitation of eligible business

Before investment


After investment








However, under additional restrictions imposed by the economic statement eligible businesses:

  • must be primarily carried on in Canada for 24 months while the investor holds the shares; and
  • cannot include specified financial institutions, professional corporations and corporations with significant real estate holdings.

Eligible Capital Property

Consistent with the reduction in the capital gains inclusion rate, a one-half inclusion rate will apply to gains on dispositions of eligible capital property for taxation years ending after October 17, 2000. It appears that three-quarters of the cost of such property will continue to be added to the eligible capital property pool, while three-quarters of the proceeds of disposition will be credited to the pool.

Corporate Tax Measures

Rate Reductions

February's budget reduced the federal general corporate tax rate from 28% to 27% effective January 1, 2001 and promised to further reduce the rate to 21% within five years. The timetable is now accelerated as follows:


General corporate tax rate

January 1, 2001


January 1, 2002


January 1, 2003


January 1, 2004


As cautioned in the budget, the reduced rate will apply to corporate income not already benefiting from preferential tax rates. Thus small businesses enjoying reduced corporate rates, manufacturing companies accessing the manufacturing and processing tax credit, investment companies benefiting from the refundable tax provisions and mutual fund and investment corporations will not be eligible for the reduced rates. Nevertheless, the services and knowledge-based sectors of the economy will benefit.


A new 15% non-refundable investment tax credit will be provided to individuals (but not trusts) that invest in flow-through shares. The credit may be claimed in respect of specified Canadian mineral exploration expenses renounced to the shareholder and incurred:

  • pursuant to a flow-through share agreement made after October 17, 2000; and
  • after October 17, 2000 and before 2004.

The credit will reduce the Canadian exploration expenses otherwise deductible.

The credit is available only for expenses for "grass roots" surface exploration excluding expenses for digging test pits and preliminary sampling. The federal government commented that it will continue to review the definition of eligible expenses and other technical issues related to flow-through shares.

Foreign Spinoffs

In certain reorganizations, a foreign corporation may "spin-off" or distribute to its shareholders shares of another foreign corporation. Often, the reorganization is a tax-free transaction in the foreign jurisdiction. Nevertheless, Canadian shareholders of the distributing corporation are generally treated as having received a taxable dividend. For spin-offs occurring on a tax-free basis in the United States, and for yet-to-be prescribed spin-offs occurring in other countries with which Canada has a tax treaty, Canadian shareholders will now be able to elect to reduce the tax cost of their holdings in the distributing corporation by the fair market value of the shares received.

The calculated cost base reduction to the shares of the distributing corporation will become the tax cost of the shares received by the taxpayer. The election will be available only if certain conditions are met including the fact that the US corporation making the distribution is widely held, public and actively traded.

The election option will be extended to certain distributions received by taxpayers after 1997 and before October 18, 2000, provided the taxpayers notify the Minister of Revenue in writing before July 2001.

Share-For-Share Exchanges

A share-for-share exchange rollover rule will be developed providing Canadian resident shareholders with a tax deferral where the only consideration received in exchange for their shares of a Canadian corporation are shares of a foreign company. Currently, the rules only allow tax deferral where the consideration consists of shares of a domestic corporation. The rule will apply only when draft legislation has been developed in consultation with the private sector. If implemented as intended, cumbersome "exchangeable share" transactions currently used to economically achieve the same result could be a thing of the past.

Mutual Funds And Segregated Funds

Rather than compute their taxable capital gains and losses using the specific identification method, mutual fund trusts, mutual fund corporations, and segregated funds trusts will be offered a concessionary option whereunder they may treat their capital gains and losses as though they were earned evenly throughout their 2000

taxation year.

It appears under this option that the number of days in each period for which a different inclusion rate applies when divided by the total number of days in the taxation year, determines the portion of the gains for the year allocable to each of the periods. These gain amounts for the periods would then be used to determine the fund's effective capital gains inclusion rate for the year.

The manner in which a fund calculates its capital gains refund and reports the gains distributed to its unitholders must be consistent with the method chosen by the fund to calculate its own gains.

Segregated funds will not be able to use this alternative method in respect of gains allocated to a redeeming unitholder.

The information provided herein is for general guidance on matters of interest only. The application and impact of laws, regulations and administrative practices can vary widely, based on the specific facts involved. In addition, laws, regulations and administrative practices are continually being revised. Accordingly, this information is not intended to constitute legal, accounting, tax, investment or other professional advice or service.

While every effort has been made to ensure the information provided herein is accurate and timely, no decision should be made or action taken on the basis of this information without first consulting a PricewaterhouseCoopers LLP professional. Should you have any questions concerning the information provided herein or require specific advice, please contact your PricewaterhouseCoopers LLP advisor, or: PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and other members of the worldwide PricewaterhouseCoopers organization.

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.

In association with
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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

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