Budget 2018 – Key Points for Business

Long on spending. Short on growth. Some important fixes. But, Budget 2018 does little to prepare the Canadian economy for the risks that lie ahead.

Click here for full analysis

Key Points for Business

Tax Treatment of Passive Investment Income:

• New rules for the tax treatment of small business passive income are simpler than
  previously proposed and will mitigate negative impacts on savings and
  investment for most small business owners. They will, however, still increase taxes
  for a small percentage of Canadian Controlled Private Corporations with passive
  investment income over $50,000.
  • The government will maintain its commitment to:
    • Protect passive investments already made by private corporations,
      including income earned from those investments
    • Establish a $50,000 threshold on passive investment income per year
    • Maintain incentives for venture capital and angel investor
  • The small business deduction limit will be reduced by $5 for every dollar of
    passive investment income in excess of the $50,000 threshold. Once passive
    investment income reaches $150,000, a small company will be subject to the
    general corporate tax rate. This is a much simpler approach to limiting the tax
    benefits available to smaller companies than the government proposed last
    July and does not involve changing refundable taxes or dividend tax rates.
  • The budget also proposes to end the tax advantage that larger CCPCs have
    by paying out lower taxed dividends from active income taxed at the general
    corporate tax rate and then claiming refunds of taxes paid on their investment
    income intended to be taxed at the higher tax rate.

Other Tax Measures:

• Eligibility for Mineral Exploration Tax Credit for flow-through share investors is
  extended for one year.
• 50% declining-balance accelerated depreciation on energy conservation
  equipment (Class 432. Assets) is extended until the end of 2014.
• Stricter tax treatment of artificial losses using equity-based financial arrangements,
  share repurchase transactions, at-risk rules for tiered partnerships, health and
  welfare trusts and foreign affiliates dealing in debt or investment income.
• A “stop-the-clock” rule will be applied to all CRA information requirements and
  compliance orders, extending the period of assessment to cover any time those
  orders are contested.
• CRA will be given an additional three years to reassess loss carry-backs involving
  non-resident, non-arm’s-length corporations.
• GST/HST will apply to management and administrative services provided by the
  general partner to investment limited partnerships rendered only on or after
  September 8, 2017.
• Excise taxes on tobacco will be increased and adjusted for inflation annually.
• Rules for the taxation of cannabis are proposed, which will come into effect when
  cannabis for non-medical purposes becomes available for retail sale.

Spending

• Employment Insurance Benefits:
  • EI Working while on Claim pilot rules will be made permanent.
  • Training funds to assist workers in seasonal industries are increased.
  • $1.2 billion over five years to establish a new EI Parental Sharing Benefit.
  • Note: In spite of significant investments from the EI fund, total EI benefits are
    expected to decline because of the budget’s low unemployment forecast.
• Skills:
  • A new Apprenticeship Grant for women and Pre-Apprenticeship Program will
    encourage under-represented groups to explore careers in skilled trades.
  • $2 billion over five years to create a new Aboriginal Skills and Employment
• Training Program.
• Trade:
  • $75 million over five years to increase Canada’s diplomatic and trade
    presence in Asia.
  • A Canadian Ombudsman for Responsible Enterprise will be appointed to
    ensure Canadian companies operating abroad “exercise leadership in
    ethical, social and environmental practices.”
• Innovation:
  • $1.7 billion over five years to Canada’s granting councils and research
    institutes.
  • $573 million over five years to implement a Digital Infrastructure Strategy.
  • $140 million over five years for collaborative projects between business and
    colleges/polytechnics.
  • $540 million over five years to strengthen research and collaboration at the
    National Research Council.
  • $2.8 billion dollars over five years to renew federal research laboratories.
  • Simplification and consolidation of business support programs (with additional
    funding) through an Accelerated Growth Services focusing on the Industrial
    Research Assistance Program, Strategic Investment Fund, Trade Commissioner
    Services, and Regional Development Agencies.
  • Launch of a new Women Entrepreneurship Strategy with $105 million over five
    years to regional development agencies to promote women-led businesses.
  • $85.3 million over five years to help Canadian companies access and share
    intellectual property, including the establishment of patent pools, a patent
    advisory service and the creation of an IP marketplace.
  • Establishment of a new electronic procurement platform to simplify and widen
    the scope of procurement processes.
  • $100 million over five years to develop the next generation of rural broadband.
  • $392 million over five years to create a new Centre for Cybersecurity and
    support its cybersecurity strategy.
• Regulatory Reform:
  • A new Regulatory Reform Agenda aimed at supporting innovation and
    investment, including regulatory reviews, further regulatory cooperation with
    the United States and a new e-regulation platform to improve consultation
    and awareness.
  • Pharmacare
    A new Advisory Council will recommend options for moving forward on the
    implementation of a National Pharmacare Program. While the objective is
    laudable, it will be important that the Council work closely with those
    businesses that already provide pharmacare-related benefits to Canadians.

Analysis provided by the Canadian Chamber of Commerce