Federal Budget: measures affecting corporations

On March 19, 2019, Canada's Minister of Finance, Bill Morneau, tabled his government's budget for 2019-2020. The budget contains many fiscal measures for businesses, including measures pertaining to the capital cost allowance on eligible zero-emission vehicles.

Capital cost allowance (CCA) increased and new categories for acquiring zero-emission vehicles

The budget proposes a CCA increased to 100% for the first year on eligible zero-emission vehicles in Classes 10, 10.1, and 16 acquired on or after March 19, 2019, and available for use before 2028 (subject to a phase-out for vehicles that become available for use after 2023). This can be a new vehicle that is fully electric, a plug-in hybrid with a battery capacity of at least 15 kwh, or a vehicle fully powered by hydrogen.

Two new CCA Classes will be created:

  • Class 54 (30%) for vehicles that would otherwise be included in Class 10 or 10.1; a $55,000 limit (plus sales taxes) will apply to the CCA in respect of each zero-emission passenger vehicle. The GST recovery rules will be adjusted to take this new limit into account; and
  • Class 55 (40%) for vehicles that would otherwise be included in Class 16.

Scientific Research and Experimental Development (SR&ED)

The budget proposes to repeal the use of taxable income as a factor in determining a CCPC's annual expenditure limit for the purpose of the enhanced SR&ED tax credit. As a result, for tax years ending March 19, 2019, a company with taxable capital of up to $10 million will benefit from unreduced access to the enhanced refundable SR&ED credit regardless of its taxable income.

Requirements for information

The budget proposes to allow the CRA, as of 2020, to send electronic requirements for information issued under certain tax acts, such as the Income Tax Act and the Excise Act, to banks and credit unions.

GST/HST related measures

The budget proposes three measures to improve the handling of GST/HST related to health care services provided after March 19, 2019:

  • relief related to supplies and importation of human ova and in vitro embryos;
  • inclusion of podiatrists and chiropodists on the list of practitioners on whose order certain footcare devices can be sold on a zero-rated basis; and
  • exemption with regard to multidisciplinary health services.

Contributions to a Specified Multi-Employer Plan (SMEP) for older members

To bring SMEP rules into line with the pension tax provisions that apply to other defined benefit registered pension plans (RPP), the budget proposes to prohibit contributions to a SMEP in respect of a member after the end of the year in which the member attains 71 years of age. This measure shall apply with regard to contributions to a SMEP made pursuant to collective bargaining agreements entered into after 2019, in relation to contributions made after the date the agreement is entered into.

Mutual funds

The budget proposes two new rules with respect to the "allocation to redeemers methodology" used by mutual funds. If the stipulated conditions are met, the mutual fund trust may have its deduction for that allocation refused. These measures will apply to taxation years that begin on or after March 19, 2019.

Taking action to enhance tax compliance in the real estate sector

The budget proposes, starting in 2019, to create new dedicated residential and commercial real estate audit teams to ensure that the sales of principal residences and capital gains derived from real estate sales are adequately reported on tax returns, and that builders of new residential properties remit the appropriate amount of GST/HST.

Other measures

The budget includes other measures targeted at businesses, including:

  • measures to support businesses that qualify as eligible Canadian journalism organizations:
    • enabling them to register as qualified donees and thereby receive donations and issue official donation receipts beginning on January 1, 2020;
    • create a 25% refundable tax credit on eligible salary or wages paid on January 1, 2019, or later, with a maximum of $13,750 per person and per year; and
    • create a 15% non-refundable temporary tax credit (12.5% for Quebec residents) for individuals who subscribe after 2019 and before 2025 to eligible Canadian digital news media, up to $75 per year ($62 for Québec residents); and
  • international tax measures:
    • clarifying that transfer pricing rules take precedence over other measures in the Income Tax Act and that the definition of "transaction" is also used for the purposes of the extended reassessment period; and
    • amending and expanding rules for a dividend compensation payment made by a Canadian resident to a non-resident lender under a securities lending arrangement, so that it is treated as a dividend under the characterization rules and is still subject to Canadian dividend withholding tax.
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This document is intended to provide information of a general nature, which is not to be considered as tax advice. Although reasonable measures have been taken to ensure the accuracy of this information, Desjardins does not provide any guarantee of its accuracy.