On April 21, 2015, the Federal Minister of Finance, Joe Oliver, presented the majority government’s budget and we’ve highlighted some of the tax initiatives that may affect our clients.

Small Business Tax Rate

The small business tax rate will be reduced from 11% to 9% as follows:

• January 1, 2016 – 10.5%
• January 1, 2017 – 10%
• January 1, 2018 – 9.5%
• January 1, 2019 – 9%

The reduction in the small business rate will be pro-rated for corporations with taxation years that straddle these dates.

Tax Avoidance of Corporate Capital Gains – Section 55

Stemming from a recent decision by the Tax Court of Canada that involved the creation of an unrealized capital loss that was used to avoid capital gains tax on the sale of another property, the budget proposes to amend section 55 to ensure that it applies where one of the purposes for a dividend is to effect a significant reduction in the fair market value of any share or significant increase in the total cost of properties of the dividend recipient. Other related rules are also proposed to ensure this amendment is not circumvented.

The budget also proposes to make a number of additional changes to the wording and structure of section 55, including changes:

• so that any dividend to which section 55 applies will be treated as a gain from the disposition of capital property for the year, rather than being added to proceeds
• that amend the exception for dividends received in certain related party transactions such that it will only apply to dividends that are received as a result of shares being redeemed, acquired or cancelled, and
• that address the use of stock dividends

The above measures apply to dividends received after April 20, 2015.

Lowering the EI Premium Rate in 2017

In 2017, the government will implement the seven-year break-even EI premium rate-setting mechanism, which will ensure that EI premiums are no higher than needed to pay for the EI program over time.

This is expected to reduce the EI premium rate from $1.88 in 2016 to an estimated $1.49 in 2017.

Tax-Free Savings Account (TFSA)

Starting in 2015, the annual TFSA contribution limit will increase from $5,500 to $10,000 and will remain at this level for subsequent years. The limit will no longer be indexed to inflation.

Home Accessibility Tax Credit

Effective 2016, eligible individuals who spend up to $10,000 on eligible expenditures in respect of qualifying individuals (seniors and certain persons with disabilities) can claim a non-refundable tax credit of up to $1,500.

Eligible expenditures in connection with an eligible dwelling for the qualifying individual include certain renovations or alterations that increase mobility or safety. This credit can be claimed in addition to the Medical Expense Tax Credit, to the extent that both apply.

For a more complete list of the budget highlights, please see this article published by PWC.