A photo of the Parliament of Canada with blue skies in the background.

2017 Federal Budget Highlights

March 23, 2017

For our clients, we offer these 2017 Federal Budget Highlights. Finance Minister Bill Morneau released his second Canadian Federal Budget titled “Building a Strong Middle Class” on March 22, 2017, which continues to focus on innovation and skills development and to expand the tax base by taking aim at certain tax loopholes and perceived aggressive tax planning. There were no changes to the capital gains tax rate as many had predicted.

The Budget projects a deficit of $23 billion for 2016 – 2017 and growing to $28.5 billion for 2017-2018. Included in the Budget is an investment of over $950 million over 5 years to support a number of businesses led innovation clusters and $400 million over 5 years to support new clean technologies.

2017 Federal Budget Highlights

The government will also invest an additional $524 million over 5 years to prevent tax evasion and improve tax compliance by increasing verification activities, hiring additional auditors and focusing on the underground economy.

Of particular note is the elimination of the deduction of work-in-progress in computing income for tax purposes of certain professionals (such as accountants, dentist, doctors, lawyers, chiropractors and veterinarians). Work-in-progress of these professionals will now be required to be valued at the lower of cost and fair market value for tax purposes.

The government also stated that it intends to review the use of tax planning strategies by private corporations that “inappropriately reduce personal taxes of high-income earners” including:
(i) reviewing income sprinkling using private corporations which causes income that would otherwise be earned by a high income taxpayer to instead be realized by family members who are taxed at lower personal tax rates,
(ii) reviewing the holding of passive portfolios inside a private corporation that can facilitate the accumulation of earnings by owners of private corporations, and
(iii) reviewing strategies that convert a private corporation’s regular income into capital gains.

The government has also made a number of other small business tax, personal tax, international tax and GST/HST changes which are specifically targeted to certain situations.

If you require further information on the 2017 Federal Budget Highlights or would like to discuss these matters, please contact your DMCL advisor.