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2019-03-19 Federal budget
Capital cost allowance – Zero-emission vehicles
For zero-emission vehicles acquired after March 18, 2019, two new capital cost allowance (CCA) classes will be added. Class 55 will be created for zero-emission vehicles otherwise included in class 16, essentially automobiles for lease or rent and taxicabs, with the same CCA rate of 40%. Class 54 will be created for zero-emission vehicles that would otherwise be included in class 10 or 10.1, essentially other automobiles, with the same CCA rate of 30%. The CCA will still apply on a declining-balance basis.
If the vehicle is acquired after March 18, 2019, and before 2028, an enhanced first-year CCA will be available as follows:
- 100% after March 18, 2019 and before 2024
- 75% after 2023 and before 2026
- 55% after 2025 and before 2028
The CCA will be applicable on any remaining balance in the new classes using the specific rate for the new class.
Character conversion transactions
A character conversion transaction is a transaction that artificially turns ordinary taxable income into capital gain through the use of derivative contracts. In 2013, rules were introduced regarding derivative forward agreements. Certain commercial transactions (for example, merger and acquisition transactions) were excluded from these rules. But an alternative character conversion transaction has been developed to misuse this exception. For transactions entered after March 18, 2019, an additional qualification is introduced for the commercial transaction exception as it applies to purchase agreements.
This measure will also apply after December 2019 to transactions that were entered into before March 19, 2019, including those that extended or renewed the terms of the agreement after March 18, 2019.
Cross-border share lending arrangements
For amounts paid or credited as securities lending arrangement (SLA) compensation payments after March 18, 2019, measures will ensure that the withholding tax consequences for non-resident lenders under a share loan would generally be the same as if they had continued to hold the lent share. For example, the payments by a Canadian resident to a non-resident in respect of shares issued by a Canadian resident corporations (lent share) will always be treated as dividend, and hence subject to withholding tax. This does not apply for amounts paid or credited as SLA compensation payments after March 18, 2019, and before October 2019, if they were made under a written arrangement entered into before March 19, 2019.
Donations for cultural property
For donations made after March 18, 2019, the requirement that property be of "national importance" (that is have a direct connection with Canada's cultural heritage) in order to qualify for the enhanced tax incentives for donations of cultural property is removed. This does not apply to the export of cultural property out of Canada. Enhanced tax incentives include an enhanced charitable donation deduction and an income tax exemption for any capital gains arising on the disposition of the property.
Electronic delivery of requirements for information
Starting January 1, 2020, the Canada Revenue Agency will be allowed to send requirements for information electronically to banks and credit unions, rather than delivering them in person or by registered or certified mail. Written consent of the bank or credit union will be required.
Foreign affiliate dumping
The foreign affiliate dumping rules are intended to counter erosion of the tax base by preventing surplus from being stripped out of Canada without tax. For transactions that occur after March 18, 2019, the application of these rules will be extended to corporations resident in Canada that are controlled by a non-resident individual, a non-resident trust or a group of non-resident persons that do not deal with each other at arm's length.
Scientific Research and Experimental Development (SR&ED) Program
For tax years ending after March 18, 2019, taxable income is no longer a factor in determining a Canadian-controlled private corporation (CCPC) annual expenditure limit for the purpose of the refundable 35% enhanced SR&ED tax credit. Only the taxable capital employed in Canada remains a factor.
Small business deduction – Farming and fishing
For tax years starting after March 21, 2016, sales of the farming products or fishing catches by a CCPC's farming or fishing business to any type of arm's length purchaser corporation are excluded from specified corporate income and eligible for the small business deduction. Previously, sales had to be to a farming or fishing cooperative corporation to be eligible.
Support for Canadian journalism
As of January 1, 2019, journalism organizations will be able to request recognition as a qualified Canadian journalism organization (QCJO). This status is a necessary condition for each of the three following new measures:
- a new qualified donee status
- a refundable labour tax credit
- a non-refundable tax credit for Canadian digital news media subscriptions
A new category of qualified donee, registered journalism organizations (RJO), is added. RJOs will be tax exempt and will have largely the same benefits as other charitable organizations, such as issuing donation receipts. A RJO will also have similar requirements to comply with in order to maintain its qualified donee status.
Effective January 1, 2019, a 25% refundable labour tax credit will be available to QCJOs, to a maximum credit of $13,750 per employee per year for qualifying labour expenditures. In addition, a RJO, which will be exempt from income tax, may also be entitled to this tax credit for its qualifying labour expenditures.
Transfer pricing measures
For tax years starting after March 18, 2019, new measures will ensure that the transfer pricing rules related to Part XVI.1 of the Income Tax Act are applied before any other provision of the Act. For tax years for which the normal reassessment period ends after March 18, 2019, an extended reassessment period will apply as a consequence of an arrangement or event relating to transfer pricing transactions involving a Canadian taxpayer and a non-resident with whom the taxpayer does not deal at arm's length. This will allow the extended reassessment period to apply to a broader range of situations.
2019 – Provinces and territories
British Columbia farmers’ food donation tax credit – This credit, which was scheduled to end December 31, 2019, is extended one year to December 31, 2020.
British Columbia mining exploration tax credit – This credit, which was scheduled to end December 31, 2019, is made permanent.
British Columbia shipbuilding and ship repair industry tax credit – This credit, which was scheduled to end December 31, 2019, is extended three years to December 31, 2022.
British Columbia small business venture capital tax credit – Effective February 20, 2019, the maximum amount that eligible corporations can raise through this tax credit program is increased to $10 million from $5 million. Various changes to the Small Business Venture Capital Act will affect who may invest in entities under that Act, what activities registered corporations may engage in and for which investments certificates will be issued.
British Columbia training tax credit – This credit, which was scheduled to end December 31, 2018, is extended one year to December 31, 2019.
Manitoba book publishing tax credit – This credit, which was scheduled to end December 31, 2019, is extended five years to December 31, 2024.
Manitoba cultural industries printing tax credit – This credit, which was scheduled to end December 31, 2019, is extended one year to December 31, 2020. For tax years ending after March 6, 2019, the annual maximum credit that can be claimed is set at $1.1 million per corporation.
Manitoba film and video production tax credit – This credit, which was scheduled to end December 31, 2019, is made permanent.
Manitoba manufacturing investment tax credit – For qualifying property acquired after June 30, 2019, the refundable part of this credit is reduced from 8% to 7% of the cost of the property.
Manitoba small business venture capital tax credit – This credit, which was scheduled to end December 31, 2019, is extended three years to December 31, 2022.
Newfoundland and Labrador
Newfoundland and Labrador film and video industry tax credit – This credit, which was scheduled to end December 31, 2018, is extended three years to December 31, 2021.
Nova Scotia innovation equity tax credit – This credit encourages individual investors to make equity capital investments in support of young, growing, and innovative businesses. Effective April 1, 2019, it will also be available to corporations. The credit will be equal to 15% of the investments made by the corporation, to a maximum investment of $500,000.
Nova Scotia venture capital tax credit – Effective April 1, 2019, Nova Scotia is introducing a venture capital tax credit that will be available for both individuals and corporations who invest in a qualifying venture capital fund. The tax credit rate will be 15%.
Lower rate of Nunavut corporation income tax – Effective July 1, 2019, the Nunavut lower rate of corporation income tax decreases from 4% to 3%.
Ontario interactive digital media tax credit – For tax years starting after April 11, 2019, the minimum Ontario labour expenditures that a specialized digital game corporation must incur in its tax year for eligible digital games is decreased from $1 million to $500,000.
Prince Edward Island
Lower rate of Prince Edward Island corporation income tax – For tax years starting on after January 1, 2020, the Prince Edward Island lower rate of corporation income tax will decrease from 3.5% to 3%.
Yukon carbon price rebate – Starting on July 1, 2019, the federal carbon levy will be applied to fuels purchased in Yukon. Yukon’s carbon price rebate program will return all carbon levy revenues back to individuals, businesses, First Nations, and municipal governments. The CRA will administer portions of this program in the form of rebates.
2018 – Federal
Corporation Internet Filing
When using Corporation Internet Filing, you can now specify hours and minutes in the tax year-end field of the T2 return for certain situations.
New email notifications
On June 25, 2018, we started sending email notifications when important changes are made to your business account.
New payment options
You can now pay by credit card through third-party service providers. Also, all remittance vouchers for corporations supplied after October 2018 contain a Quick Response (QR) code that allows payments to be made at Canada Post outlets.
The new T2 Auto-fill service allows corporations and authorized representatives to download information from the Canada Revenue Agency (CRA) to their tax preparation software.
Voluntary Disclosures Program
On March 1, 2018, changes to the Voluntary Disclosures Program narrowed the eligibility criteria and imposed additional conditions on applicants. For a corporation to qualify for the VDP relief based on the eligibility criteria in effect before March 1, 2018, the CRA must have received the corporation’s application with all required information, including its name, before March 1, 2018. See Information Circular IC00-1R6.
Fall Economic Statement 2018
Government of Canada’s Fall Economic Statement 2018 was tabled November 21, 2018.
It proposes the following measures for eligible property that is acquired after November 20, 2018, and that becomes available for use before 2028:
- an enhanced first year allowance for capital cost allowance (CCA) class 53 property (machinery and equipment used for the manufacturing or processing of goods) and class 43.1 and 43.2 property (clean energy equipment). The enhanced allowance will initially provide a 100% deduction for property that becomes available for use before 2024, effectively allowing for full expensing of the property. The enhanced allowance will be phased out for property that becomes available for use after 2023.
- an accelerated investment incentive, which will provide an enhanced first year allowance for certain eligible property that is subject to the CCA rules. In general, the incentive will be made up of two elements:
- a 50% increase of the net capital cost addition to a class for property that becomes available for use before 2024
- the suspension of the existing CCA half-year rule (and equivalent rules for Canadian vessels and class 13 property) for property that becomes available for use before 2028
The incentive will allow a first year deduction equal to up to three times the amount that would otherwise apply in the year the asset is available for use or, for leasehold interest, in the year the capital cost is incurred. Property currently subject to the existing half-year rule will effectively qualify for an enhanced CCA equal to three times the normal first year allowance, and property not subject to the half-year rule will qualify for one and a half times the normal first year allowance. The incentive will be phased out for property that becomes available for use after 2023. It will also generally apply to eligible Canadian development expenses and Canadian oil and gas property expenses, but will not apply to property in classes 43.1, 43.2, or 53, which will benefit from the full expensing measures mentioned above.
The accelerated investment incentive will apply to property for which CCA is calculated on a declining-balance basis (including class 14.1, intangible property), as well as property with straight-line depreciation (for example, leasehold improvement, patents, and limited period licences).
In certain situations, rules related to limited partners, specified leasing properties, specified energy properties and rental properties can restrict a CCA deduction, or a loss in respect of such a deduction, that would otherwise be available. These rules will continue to apply.
Property that has been used, or acquired for use, for any purpose before it is acquired by the corporation will be eligible for the incentive only if both of the following conditions are met:
- neither the corporation nor a non-arm’s-length person previously owned the property
- the property has not been transferred to the corporation on a tax deferred “rollover” basis
The accelerated investment incentive will not change the total amount that can be deducted over the life of the property, it will just allow a larger deduction in the first year.
The Fall Economic Statement 2018 introduced an accelerated rate for Canadian development expenses (CDE) that a flow-through share (FTS) investor receives from a principal business corporation (PBC). This tax measure applies to FTS agreements entered into after November 20, 2018, for CDE incurred after the agreement date.
A PBC needs to inform the investor that the renounced amount meets those conditions in order for the investor to benefit from the permissive accelerated rate for these renounced expenses.
If you have invested in a FTS after November 20, 2018, and have received a statement of resource expenses from a PBC, you may claim CDE at the rate of 45% in the tax year in which they are renounced to you and, thereafter, at a rate of 30%.
[2018-02-27 Federal budget]
Artificial losses using equity-based financial arrangements
Certain aspects of the synthetic equity arrangement rules and the securities lending arrangement rules are clarified to prevent corporations from realizing artificial tax losses by using equity-based financial instruments to avoid the application of these rules. The measures related to the synthetic arrangements apply to dividends that are paid or become payable after February 26, 2018. The measures related to the securities lending arrangements apply to dividend compensation payments paid or payable, or received or receivable after February 26, 2018, unless they are paid or payable, or received or receivable before October 2018 and made according to a written arrangement entered into before February 27, 2018.
At-risk rules for tiered partnerships
For tax years that end after February 26, 2018, it was clarified that the at-risk rules apply to a partnership that is itself a limited partner of another partnership and that a corporation's available non-capital loss and limited partnership loss carry-forward balances have to be adjusted as if these rules applied in the preceding years.
Business limit reduction
For tax years that begin after 2018, the business limit of a Canadian-controlled private corporation (CCPC) is reduced on a straight-line basis if the CCPC, and any other corporation it is associated with, earn combined income from passive investments between $50,000 and $150,000. Previously, the business limit was reduced based only on the taxable capital employed in Canada. The reduction in the CCPC's business limit is now the greater of its taxable capital business limit reduction and its passive income business limit reduction for the year.
Capital cost allowance
Class 43.2 provides an accelerated capital cost allowance at a rate of 50%, on a declining-balance basis, for specified clean energy generation and energy conservation equipment. Previously, this was limited to property acquired before 2020. The eligibility is now extended to include property acquired before 2025.
Effective February 27, 2018, universities outside of Canada to which tax creditable gifts can be made are no longer required to be prescribed in Schedule VIII of the Regulations.
Cross-border surplus stripping using partnership and trusts
For transactions or events that occur after February 26, 2018, the application of an existing anti-surplus stripping rule is expanded. This rule prevents a non-resident shareholder of a Canadian corporation from extracting (either now or in the future), without withholding tax, the corporation's retained earnings that exceed the amount of capital that the shareholder contributed to the corporation. The rule is expanded by including a look-through rule where a partnership or trust is used to avoid the purposes of the anti-surplus stripping provision.
Consequential amendments were also made to account for this expanded anti-surplus stripping rule, including changes to the thin capitalization rules and to the corresponding corporate immigration rules.
For tax years that begin after 2018, the dividend refund rule is changed so that a private corporation gets a refund of its refundable dividend tax on hand (RDTOH) only where it pays non-eligible dividends, or eligible dividends that are derived from portfolio dividends it received from non-connected corporations. A transitional rule will preserve the refundability of a corporation's pre-existing RDTOH.
For tax years of a corporation that begin after February 26, 2018, the reassessment period is extended by three years for income arising in connection with a foreign affiliate of the corporation.
For tax years of a foreign affiliate that begin after February 26, 2018, new rules are introduced in response to “tracking arrangements” undertaken by Canadian corporations to avoid the investment business rules and the controlled foreign affiliate status, to ensure that the foreign accrual property income earned by a foreign affiliate is taxed on an accrual basis.
For tax years of a foreign affiliate that begin after February 26, 2018, a Canadian corporation’s foreign affiliate that is a regulated foreign financial institution whose principal business is to derive income from trading or dealing in indebtedness will only be exempted from the foreign property accrual property rule if it satisfies minimum capital requirements.
The reassessment periods are extended that relate to:
- foreign affiliates
- non-resident non-arm's length persons
- requirements for information and compliance orders
Non-resident non-arm's length person
For losses incurred in a particular tax year that ends after February 26, 2018, the reassessment period for a preceding tax year to which those losses are carried back is extended six years beyond the normal reassessment period if both of the following apply:
- the losses are reduced as a result of a reassessment made to the particular tax year beyond the normal reassessment period for the year
- the reassessment to the particular tax year is made as a consequence of a transaction involving the corporation and a non-arm's length non-resident person
Requirements for information and compliance orders
For challenges made after the legislation receives royal assent, a "stop-the-clock" rule is introduced for requirements for information served to corporations and for compliance orders. This rule will extend the reassessment period of a corporation by the period of time during which the requirement or compliance order is contested. The period will generally start the day on which the challenge is started and will end on the final disposition of the application (including any appeals). Previously, similar rules applied only to situations involving foreign-based information.
Stop-loss rule on share repurchase transactions
For a share repurchase made after February 26, 2018, the rules related to shares held as mark-to-market property are amended so that the tax loss otherwise realized on a share repurchase is generally decreased by the dividend deemed to be received on that repurchase when that dividend is eligible for the inter-corporate dividend deduction. Previously, in certain circumstances, the dividend stop-loss rule denied only a part of the tax loss realized on a share repurchase.
2018 – Provinces and territories
British Columbia book publishing tax credit – This credit, which was scheduled to end March 31, 2018, is extended three years to March 31, 2021.
British Columbia information reporting of tax avoidance transactions – Effective February 21, 2018, the BC government introduced updates to its anti-avoidance rule and other amendments that require corporations in BC to disclose aggressive tax avoidance transactions to the CRA. This parallels the federal approach on reportable transaction rules. This applies to a reportable transaction entered into after February 20, 2018, or a reportable transaction that is part of a series of transactions completed after February 20, 2018.
British Columbia farmers’ food donation tax credit – This credit, which was scheduled to end December 31, 2018, is extended to December 31, 2019.
British Columbia film and television tax credit – This credit is expanded to include a new scriptwriting tax credit. This new refundable credit is equal to 35% of eligible scriptwriting expenditures incurred after February 20, 2018.
British Columbia interactive digital media tax credit – This credit, which was scheduled to end August 31, 2018, is extended five years to August 31, 2023.
Manitoba book publishing tax credit – This credit, which was scheduled to end on December 31, 2018, is extended to December 31, 2019.
Manitoba business limit – Effective January 1, 2019, the Manitoba business income limit eligible for the small business deduction rate increases from $450,000 to $500,000.
Manitoba child care centre development tax credit – Effective March 13, 2018, a new refundable income tax credit is introduced for the creation of licensed child care centres.
Manitoba credit unions – Credit unions and caisses populaires in Manitoba are eligible for an additional deduction for income over the business limit that is not eligible for the small business deduction. This deduction will be phased out over five years, starting in 2019. The 1% profits tax applicable to Manitoba credit unions and caisses populaires is eliminated effective January 1, 2019.
Manitoba cultural industries printing tax credit – This credit, which was scheduled to end on December 31, 2018, is extended to December 31, 2019.
Manitoba rental housing construction tax credit – Manitoba rental housing construction tax credit projects must be made available for use before 2020 for projects in which the application was submitted before March 13, 2018. For applications submitted after March 12, 2018, and before 2019, the project must be available for use before 2021.
Manitoba small business venture capital tax credit – Effective March 12, 2018, the minimum investment to be eligible for the credit is lowered from $20,000 to $10,000.
[Bill 31, R. A. 2018-05-08]
Ontario interactive digital media tax credit – The eligibility of the Ontario interactive digital media tax credit is extended to film and television websites that are purchased or licensed by a broadcaster and embedded in the broadcaster's website. This change applies to products that had not received a certificate of eligibility or a letter of ineligibility as of November 1, 2017.
Prince Edward Island
Lower rate of Prince Edward Island corporation income tax – For tax years ending after December 31, 2018, the lower rate of Prince Edward Island corporation income tax decreases from 4% to 3.5%.
Lower rate of Prince Edward Island corporation income tax – For tax years ending after December 31, 2017, the lower rate of Prince Edward Island corporation income tax decreases from 4.5% to 4%.
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