2018 Federal Budget
The 2018 Federal Budget was tabled earlier today with a focus on gender equality, Pharmacare, improved measures for taxation on small businesses and clean energy.
The Budget acknowledges that the housing market conditions have become more balanced in Toronto and Vancouver and that rising interest rates and the recent changes to mortgage rules in October 2017 and January 2018, should help temper housing demand across the country.
The government is investing in rental housing to help Canadian families and the aging population access housing as vacancy rates are low in large urban centers. The Canadian Mortgage and Housing Corporation (CMHC) will receive additional funding to support the Rental Construction Financing Initiative which is expected to spur the construction of more than 14,000 rental units across the country (initially announced in the Budget 2017).
In July 2017, the Minister of Finance announced changes to the tax system for private corporations. CREA highlighted concerns around the proposed new rules and the negative impact on small businesses and the government has responded positively. The budget includes two measures to limit tax deferral advantages by business owners:
- Business owners will be allowed to earn investment income in their corporation up to $50,000 annually. If a corporation earns more than $50,000 of passive investment income per year, the amount eligible for the small business tax rate would be reduced dollar for dollar. In other words, passive investment income over the threshold will not be taxed as proposed last July but will reduce the business limit for eligibility to the small business deduction which is $500,000 of active business earning annually.
- The second measure would prevent small business corporations from obtaining a refund on taxes paid on investment income. Investment income is taxed at a higher rate compared to active business income. Presently larger corporations pay out dividends from their active income which is taxed at a lower rate and still claim a refund of taxes paid on their investment income which is intended to be taxed at a higher rate. This represents a significant tax advantage. The proposal will require a corporation to pay out dividends from its refundable dividend tax on hand account that entitles the shareholder to the lower dividend tax credit (ie: ineligible dividend) before it can pay out dividends from its eligible dividend account which is from active business earnings.
The emphasis of these measures is to allow business owners to invest and support their business rather than benefit from personal tax advantages. It is estimated that less than three per cent of businesses will be affected and will only apply to new investments in the taxation years after 2018 (all past savings and investments will not face additional tax).
The government is also focused on the following initiatives
- Quality of life for First Nations, Inuit and Métis peoples is a priority for the government. A significant amount of funds will be invested over 10 years to develop a housing strategy for various Indigenous communities
- First Nations Housing Strategy
- Inuit Housing Plan in the Inuit regions
- Métis Nation Housing Strategy
- The government will implement a federal carbon pollution pricing system as part of the Pan Canadian Framework on Clean Growth and Climate Change. This system will be applied to provinces and territories that do not implement carbon pollution pricing that meets the minimum standards by January 1, 2019. Provinces will also receive funding for project proposals to decrease greenhouse gas reductions by 2030.
- The government is implementing an Advisory Council on the Implementation of National Pharmacare. The purpose of this project is to protect Canadians from high prescription drug prices. Steps are being taken to lower prices, streamline regulatory processes for drug approval, and better prescribing practices in an effort to improve accessibility and affordability of prescribed medication.
- The government is also committed to offering a fair tax system and closing tax loopholes. To further combat tax evasion and tax avoidance, the government will invest $90.6 million over five years to improve tax compliance. Additionally, the government proposes to gather detailed information on who owns which legal entity – knows as “beneficial ownership”. This would require enhanced income tax reporting for certain trusts to provide additional information on an annual basis.
- Gender equality benefits all Canadians. For this reason, the government is investing in Canada’s Gender Results Framework by:
- Helping women entrepreneurs grow their businesses with access to financings, talent, networks and expertise
- Supporting the advancement of women in senior positions
- Engaging Canadians on the benefits of gender equality