This year’s Federal Budget was released on March 22, 2017 (the “Budget Day”). Although it was a relatively light budget, it contained some income tax measures. The income tax changes included the following:
Disability tax credit – under current rules, in order to claim this credit, an individual’s physical or mental impairment must be certified by an eligible medical practitioner. The Budget expands the list of eligible medical practitioners to include nurse practitioners, applicable as of Budget Day.
Medical expense credit – under current rules, certain expenses incurred by an individual for the use of reproductive technologies for conceiving a child qualify for the credit, if the individual has an illness or condition such as the condition of medical infertility. The Budget provides that the credit will apply to such expenses even if the treatment is not required because of a medical condition (e.g. a single person or same-sex couple choosing artificial insemination to have a baby). The new provision applies to 2017 and subsequent years. However, the provision will also apply for an earlier year if the individual makes a request for a refund to the Canada Revenue Agency in respect of the earlier year within 10 calendar years after the end of the earlier year.
Family caregiver credit – as discussed in the April Tax Letter, there are three different credits that may apply if you support an eligible dependant – the spousal equivalent credit, the caregiver credit, and the infirm dependant credit. The Budget proposes to replace these credits with one consolidated Canada Caregiver Credit, effective for 2017 and subsequent years.
Tuition tax credit – the current rules allow a credit in respect of tuition paid to eligible educational institutions, which include most universities and colleges. The Budget extends the credit for tuition paid to such institutions for occupational skills courses that are not at the post-secondary level. The course must be taken for the purpose of providing an individual’s skills, or improving an individual’s skills, in an occupation. The individual must be 16 years of age or older before the end of the relevant tax year. This change applies to 2017 and subsequent years.
Public transit credit – this credit is being repealed, but will continue to apply in respect of transit passes used before July 1, 2017. For passes used from that point on, the credit is not allowed even if the pass was bought before Budget Day.
Home relocation loan – if you receive a loan from your employer with no interest or a rate of interest below the prescribed rate of interest under the Income Tax Act, you are required to include an imputed interest benefit in your employment income. However, if the loan is a “home relocation loan”, the interest benefit on the first $25,000 of the principal amount of the loan is effectively exempt from tax. A home relocation loan generally means a loan used to buy a home when you move to a new work location and your new home is at least 40 kilometres closer to the new work location relative to your former home. Under the Budget, this exemption will be eliminated beginning in 2018.
Control of a corporation – control of a corporation for tax purposes includes de jure control (control in law) by a person, which generally means the ownership of more than 50% of the voting shares in the corporation. For certain purposes, it also includes de facto control (control in fact) by a person. For example, de facto control is relevant in determining whether Canadian-controlled private corporations are associated – if they are associated, they must share the small business deduction that applies to the first $500,000 of active business in a year. The Budget “clarifies” that the determination of de facto control by a person must take into consideration all factors that are relevant in the circumstances, and must not be limited to whether the person has a legally enforceable right or ability to effect a change in the board of directors of the corporation (a 2016 Federal Court of Appeal decision, McGillivray Restaurant, had held otherwise). This change applies to taxation years that begin on or after Budget Day.
Investment tax credit for child care spaces – an employer can currently earn an investment tax credit for costs associated with the creation of child care space for its employees. The credit is being repealed for costs incurred on or after Budget Day. However, the credit will still be available in respect of expenditures incurred before 2020 pursuant to a written agreement entered into before Budget Day.
Work in progress – certain taxpayers are required to include the value of work in progress (“WIP”) in computing their income. However, designated professionals (such as accountants, dentists, lawyers, Quebec notaries, doctors, veterinarians and chiropractors) may elect to exclude the value of WIP in computing their income. The exclusion of WIP effectively means that the income is deferred and reported in the year in which the professional’s work is billed, even though expenses related to providing the work services are deductible in the year they are incurred. The Budget has eliminated this election for taxation years that begin after Budget Day (for individual professionals, the first such year will be calendar 2018). Under a transitional rule, for the first taxation year beginning after Budget Day, only 50% of the lesser of cost and fair market value of the WIP will be brought into income.