As expected, today Finance Minister Bill Morneau presented a deficit budget. While maintaining its focus on the middle class through targeted investments in innovation and skills training, the budget also emphasizes tax fairness for Canadians.
As widely anticipated, the budget projects significant deficits over the next several years. The government forecasts a deficit of $23 billion for 2016–17 and $28.5 billion in 2017–18. Over the next four years, deficits are expected to decline gradually from $27.4 billion in 2018–19 to $18.8 billion in 2021–22.
Canada continues to have the lowest total government net debt-to-GDP ratio of all G7 countries. The federal debt-to-GDP ratio is projected to decline gradually after 2018–19 reaching 30.9 percent in 2021–22.
“The 2017 federal budget emphasizes fairness while continuing to bolster Canada’s competitiveness and the middle class through investments in innovation and skills training,” said Keith MacIntyre, National Tax Leader, Grant Thornton. “While businesses and investors will be pleased in the short term that there were no changes made to capital gains inclusion rates, there continues to be real uncertainty as to the government commitment to this position.”
Tax Fairness for Business
While there were no changes to corporate tax rates, the government sent a deliberate signal that it would begin a review of tax planning and tax reduction strategies used by private corporations unavailable to other Canadians including sprinkling income, holding a passive investment portfolio inside a private corporation, and converting distributions from a private corporation into capital gains. The government intends to release a paper in the coming months setting out the nature of these issues in more detail as well as proposed policy responses.
Investment in Innovation
The budget confirmed the government’s intention to initiate a review of all federal innovation programs across all departments to help address the challenge that despite strong subsidies, Canada is failing to generate R&D-related investment when compared to other OECD countries.
The budget highlights a number of important personal measures including the elimination of a 15% non-refundable tax credit for public transit. In addition, the budget also outlines measures to increase the availability of the disability tax credit by adding nurse practitioners as eligible medical practitioners to certify eligibility.
Furthermore, the medical expense tax credit has been extended so individuals who require medical intervention to conceive a child are eligible to claim the same expenses that would generally be eligible for individuals incurring those expenses on account of a medical infertility condition. As part of these proposals, a taxpayer will also be entitled to elect in a year for this measure to apply for any of the immediately preceding 10 taxation years in their return of income in respect of the year. This measure will apply to 2017 and subsequent taxation years.
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