The 2017 federal budget (Budget 2017) was tabled on Wednesday, March 22, 2017, by Federal Finance Minister Bill Morneau. Below are the highlights that are directly relevant to our physician clients:
- Budget 2017 did not propose any changes to the capital gains inclusion rate—capital gains continue to be 50% taxable; and,
- while no immediate changes to incorporation were proposed, the government noted that it is reviewing the use of tax planning strategies involving private corporations, and will release a paper on this topic in the coming months.
No Changes to the Capital Gains Inclusion Rate
Contrary to what many expected to see in Budget 2017, there were no increases to the capital gains inclusion rate. Only 50% of any realized capital gains will continue to be included in income.
Future Changes Possible to Private Corporations
Budget 2017 highlighted that the government will be reviewing specific tax reduction strategies that are currently available to private corporations, including:
- income splitting through dividends with family members in order to reduce taxable income;
- tax deferral allowing for the accumulation of funds to invest in passive investment portfolios inside private corporations; and,
- converting a private corporation’s regular income into capital gains.
However, Budget 2017 noted that, “a number of measures have been put in place over the years to limit the scope of some of these planning arrangements, but such measures have not always been fully effective.” The government will be further reviewing the use of these tax planning strategies involving private corporations that “inappropriately reduce personal taxes of high-income earners,” and intends to release a paper in the coming months setting out the nature of these issues and its proposed policy response.
Other notable highlights from Budget 2017, and the resulting impact to Canadian physicians and their families, include:
- Caregiver tax credit: Budget 2017 proposes to eliminate the three separate caregiver credits and replace them with one simplified credit, the Canada Caregiver Credit.
- The new credit will only be applicable to dependants with infirmities, meaning the credit will not be available for adult children who live with their non-infirm senior parents.
- Tuition tax credit: Budget 2017 proposes to expand the eligibility for the tuition tax credit to occupational skills courses.
- This budget measure will apply in respect of eligible tuition fees for courses taken after 2016.
- Public transit tax credit: Budget 2017 proposes to eliminate the public transit tax credit effective July 1, 2017.
- Phasing out of Canada’s Savings Bond Program: the Government of Canada will discontinue the sales of new Canada Savings Bonds in 2017.
- Employment insurance benefits expanded: Budget 2017 proposes to expand employment insurance (EI) benefits by:
- creating a new EI caregiving benefit of up to 15 weeks;
- making EI parental benefits more flexible by allowing parents to choose to receive benefits over an extended period of 18 months at lower benefit rate; and,
- allowing women to claim EI maternity benefits up to 12 weeks before their due date (up from the current 8 weeks).
- Electronic distribution of T4 information slips: Budget 2017 will now allow issuers to provide T4 slips to recipients in electronic form without express permission from the taxpayer to receive information electronically. This change is effective for slips issued from 2017 onwards.
- Physicians providing T4 slips to employees should take note of this change.
- Prescription drugs: Budget 2017 proposes to add opioid overdose drug naloxone (and its salts) to the list of GST/HST-free non-prescription drugs that are used to treat life-threatening conditions. This measure comes into effect on March 22, 2017.
- Medical expense tax credit—eligible expenditures expansion: Budget 2017 expands the application of the medical expense tax credit so that individuals who require medical intervention to conceive a child are eligible to claim the same expenses that would generally be eligible for individuals on account of medical infertility.
- This measure applies to the 2017 and subsequent taxation years. Taxpayers will also be allowed to elect to apply this measure to any of the immediately preceding 10 taxation years.
MD will continue to monitor any new developments with respect to the changes proposed in the 2017 federal budget. If you have questions about how you or your individual financial plan may be affected, please contact your MD Advisor for more information.