Canada Presses Forward With Budget Implementation

by Mike Godfrey, Tax-News.com, Washington

18 August 2011

The Canadian government has released its proposals for the introduction of a raft of new tax credits, many of which formed part of the Conservative party's election manifesto and the subsequent Budget introduced in June.

The legislative proposals were published in draft by the Department of Finance on August 16, and are open for consultation. They will implement tax measures from Jim Flaherty's "Budget 2011, the Next Phase of Canada’s Economic Action Plan—A Low-Tax Plan for Jobs and Growth." Many of the proposals revolve around planned changes to the tax credit regime. Also included is reform of the capital cost allowances system and amendments to pension rules.

The key proposals relating to tax credits are as follows:

• The introduction of a new CAD2,000 Family Caregiver Tax Credit to provide tax relief to caregivers of infirm dependent relatives including, for the first time, spouses, common-law partners and minor children.
• The creation of a Children’s Arts Tax Credit worth up to CAD500 per child, to be used towards the payment of eligible fees associated with children’s artistic, cultural, recreational and developmental activities.
• The bringing in of a Volunteer Firefighters Tax Credit to allow eligible volunteer firefighters to claim a 15% non-refundable tax credit based on an amount of CAD3,000.
• The elimination of a rule which limits the number of claimants for the Child Tax Credit to one per domestic establishment.
• The CAD10,000 limit on eligible expenses that can be claimed under the Medical Expense Tax Credit in respect of a dependent relative is to be scrapped.
• An increase in the advance payment threshold for the Canada Child Tax Benefit to CAD20 per month and for the Goods and Services Tax/Harmonized Sales Tax (GST/HST) Credit to CAD50 per quarter. In addition, the notification requirements for the Canada Child Tax Benefit and the GST/HST Credit will be aligned.
• The minimum course duration requirements for the Tuition, Education and Textbook Tax Credits will be reduced. All occupational, trade and professional examination fees will become eligible for tax relief under the Tuition Tax Credit where an examination is required to allow the individual to practise the profession or trade within Canada.
• Eligibility for the Mineral Exploration Tax Credit will be extended by one year to flow-through share agreements entered into before March 31, 2012.

Other important plans include:

• An extension to the end of 2013 of the temporary accelerated capital cost allowance treatment for investment in manufacturing or processing machinery and equipment.
• Eligibility for the accelerated capital cost allowance for clean energy generation and conservation equipment will be expanded to include equipment that generates electricity using waste heat from sources such as industrial processes.
• Deduction rates for intangible capital costs in the oil sands sector will be better aligned with rates in the conventional oil and gas sector.
• The same income tax treatment will be offered to investments made under the Agri-Québec program as is currently provided to investments under the AgriInvest program.
• Rules will be introduced to strengthen the tax regime for charitable donations, including the “exclusivity of purpose and function” test for registered Canadian amateur athletic associations, on which a consultation was launched on July 4, 2011.
• Anti avoidance rules for Registered Retirement Savings Plans will be introduced.
• The introduction of rules to limit tax deferral opportunities for individual pension plans by imposing minimum annual withdrawal requirements similar to those for Registered Retirement Income Funds and by reducing the tax advantages related to making contributions to an individual pension plan in respect of past service.
• Tax deferral opportunities for corporations with significant interests in partnerships will be limited under new rules.
• There will be an extension of the tax on split income to transactions that involve capital gains realized by a minor child.

Interested parties have until September 16 to provide comments on the proposals.

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