The Federal Budget was delivered last Thursday, March 21, 2013 and continues to hold the course set by the Conservative Government in past years.
The recovery of the Canadian economy from the 2008 recession has been one of the strongest to date, but with the continued troubles in the European community, the situation is still far from secure.
The Government aims to balance the budget by shifting resources to increasing training for skilled workers, providing more funding for infrastructure projects, and giving a much needed boost to the manufacturing industry. But as always, the Budget brings lots of changes that affect Canadians across the country. So what does this mean for you?
Let’s examine the major features of the Budget:
Prime Minister Harper and Finance Minister Flaherty unveil the 2013 Federal Budget (Sean Kilpatrick / THE CANADIAN PRESS)
We will remain focused on what matters to Canadians—jobs and economic growth, and ensuring Canada’s economic advantage today will translate into the long-term prosperity of tomorrow.
—The Honourable Jim Flaherty, Minister of Finance
Skills Training for Canadians
Although Canadians workers are well-educated and trained compared to other countries, we still have significant short-falls when it comes to skilled workers. This has forced many employers to resort to importing skilled workers from other countries. Even though the Canadian economy has created almost 1,000,000 net new jobs since 2009, reports from numerous sources indicate there is a significant shortage when it comes to skilled tradesworkers and professionals.
Chart – Job Vacancy Rate, Selected Occupation Groups
1 The job vacancy rate is defined as the number of online job postings divided by total labour demand, that is, job postings plus occupied positions (total employment).
Sources: Statistics Canada; WANTED Analytics Inc.; Department of Finance calculations.
The Canada Jobs Grant
The Government has introduced a new initiative called the Canada Jobs Grant, as part of the renewal of the Labour Market Agreements in 2014-15. Almost 130,000 Canadians are expected to have access to the training they require to fill available high-quality jobs when the program is fully implemented.
Businesses with a plan to train unemployed and underemployed Canadians for an existing job or a better job will be eligible to apply for a Canada Job Grant. Canadians seeking training can, in partnership with an employer, benefit from the Canada Job Grant.
The Canada Job Grant could provide $15,000 per person or more for training, which includes up to $5,000 in federal contributions. Federal contributions must be matched by both provinces/territories and employers.
The Grant will be for short-duration training, and will include eligible training institutions, including community colleges, career colleges and trade union training centres.
The detailed design of the Grant will be negotiated with provinces and territories over the next year, in consultation with stakeholder groups including employer associations, educational institutions and labour organizations.
Promoting Opportunities for Apprentices
Along with the existing shortage of skilled tradespeople, the problem will only get worse as the population ages and the baby-boom generation moves into retirement. Over the next seven years alone, there’s a estimated need for over 300,000 new tradespeople.
The Government aims to reduce barriers to accreditation for apprentices as well as encouraging the use of apprentices through its various federal programs and partnership initiatives with the provinces/territories.
Facilitating Opportunities for All Canadians
There are many groups who are currently under-represented in the labour market, including newcomers to Canada, youth, Aboriginal Peoples, and persons with disabilities.
To rectify this, the Government is reforming the existing Labour Market Agreements previously due to expire in 2013, as well as creating several new initiatives to ensure all Canadians have the opportunity for employment in high-quality jobs.
Keeping Canada Globally Competitive
In the 21st Century economy, it’s increasingly difficult to keep up with competition coming from all around the world, despite Canada’s strong economic foundation.
To this end, the Government is creating several new initiatives to help Canada stay on top.
Lending Support to Small Businesses
Small businesses employ the majority of Canadians, yet existing impediments create significant challenges to the Small Business community.
The Government is extending and expanding the temporary Hiring Credit for Small Businesses by one year. In particular, the temporary credit will provide $1,000 against a small company’s increase in its 2013 Employment Insurance (EI) premiums over those paid in 2012 to employers with total EI premiums of $15,000 or less in 2012.
In addition, the Government is increasing the Lifetime Capital Gains Exemption from the current $750,000, by $50,000 to $800,000, effective for the 2014 and subsequent taxation years. As well, the Exemption will now be indexed to inflation after 2014.
At the same time, they are continuing to reduce red tape and improve services for small businesses.
Supporting Mineral Exploration
The Government is also extending the Mineral Exploration Tax Credit to flow-through agreements entered into before April 1, 2014. The existing “look-back” rule remains intact. This rule provides a credit for funds raised in a calendar year as long as the funds are spent on eligible exploration by the end of the following calendar year.
Restricted Farm Losses
Previously, the 2012 Supreme Court allowed a taxpayer to deduct farm losses completely because his chief source of income was considered to be a combination of farming and law.
The Budget proposes that a taxpayer may only deduct farm losses completely against other sources of income if the farming income is the taxpayer’s chief source of income and other sources of income are subordinate. Otherwise, the farming loss will be a restricted farm loss.
The annual restricted farm loss deduction will be increased from a maximum of $15,000 to a maximum of $17,500 ($2,500 plus 1/2 of the next $30,000). These measures will apply to taxation years ending after Budget Day.
Confronting International Tax Evasion and Aggressive Tax Avoidance
Ensuring that all Canadians pay their fair share of taxes is an ongoing concern, and the Government is enacting several strategies to deal with the problem.
Foreign Property Reporting
Section 233.3 generally requires Canadian residents and certain partnerships to disclose their holdings of certain foreign property (notably excluding personal-use property) on Form T1135, where the total cost of such property exceeds $100,000.
Commencing with the 2013 taxation year, the Budget proposes to extend the normal reassessment period by three years if:
- The taxpayer has failed to report the income from such property, and
- Form T1135 was not filed on time or the property was not identified or was incorrectly identified.
Form T1135 will be modified to require the disclosure of more specific information.
The CRA is in the process of developing a system that will allow Form T1135 to be filed electronically.
Electronic Funds Transfers (EFTs)
Beginning in 2015, most financial institutions will be required to report EFTs of $10,000 or more to the CRA. Measures will be introduced, on Royal Assent, to enable the CRA to obtain information from third parties on a more timely basis.
The CRA plans to introduce a rewards program to induce individuals to report major international non-compliance. The reward will be 15% of federal tax collected in excess of $100,000.
Dividend Tax Credit – Reducing Over-Integration (DTC)
The Budget proposes to reduce the net federal dividend tax credit available with respect to non-eligible dividends, effective for such dividends paid after 2013.
The gross-up will be reduced from 25% to 18% and the corresponding DTC will be increased from 2/3 to 13/18. These changes will increase the maximum federal tax rate on these dividends from 19.6% to 21.2%. All provinces, other than P.E.I., are currently “over-integrated”, which results in an overall tax savings from paying dividends as opposed to salary out of active business income taxed at the small business rate. This proposal will either reduce or reverse this “over-integration”.
Safety Deposit Boxes
The Budget proposes to eliminate the current deduction for the rental of a safety deposit box, effective for taxation years which begin after the Budget.
Leadership in Research and Innovation
Canada has long been a world leader when it comes to innovation in research and development. But as mature economies struggle to stay in the lead in this area, emerging economies are quickly trying to close the gap. To help ensure Canada stays the leader it is in R&D, the Government is launching several initiatives.
Since 2006, the Government has provided significant new resources to support advanced research in Canada, including new funding for:
- Basic and industry-partnered research through the federal research granting councils.
- Applied industry-relevant research at colleges and polytechnics.
- Leading-edge research infrastructure through the Canada Foundation for Innovation and the $2-billion Knowledge Infrastructure Program.
- The development and attraction of highly qualified personnel through new initiatives such as the Vanier Canada Graduate Scholarships for doctoral students and the Banting Postdoctoral Fellowships.
- Enhanced global leadership of key research institutions through the Canada Excellence Research Chairs program.
- The advancement of Canada’s capacity for research in genomics through Genome Canada.
- Knowledge transfer and commercialization through initiatives such as the Centres of Excellence for Commercialization and Research, the Business-led Networks of Centres of Excellence and the Industrial Research and Development Internships.
Labour-Sponsored Venture Capital Corporations Tax Credit (LSVCC)
The Budget proposes to phase out the federal LSVCC. Commencing in 2015, it will be reduced from 15% to 10%, it will be further reduced to 5% in 2016 and to zero after 2016. In addition, an LSVCC cannot be federally registered on or after Budget Day and a provincially registered LSVCC will not be prescribed for purposes of the federal credit unless the application was submitted before Budget Day.
These credits have not only been ineffective in generating more venture capital, but they have also helped finance poor projects that should have never been funded in the first place.
—Jack M. Mintz, National Post, March 15, 2012
Supporting Families and Communities
The Budget for 2013 builds on the previous efforts by the Government to improve the quality of life for Canadian families.
The Adoption Expense Tax Credit (AETC)
The current AETC is available for qualifying expenses during the period from the time the child is matched with his or her adoptive family and the time that the child begins to permanently reside with the family. The adoptive family may incur significant adoption-related expenses prior to being matched with a child.
Consequently, the Budget proposes to commence the eligible period for adoptions finalized after 2012 with the time that an adoptive parent makes an application to register with a provincial ministry responsible for adoption or with a licensed adoption agency. In addition, where an adoption-related application is made to a Canadian court at an earlier time, with that earlier time.
Chart – Per Cent Reduction in Personal Income Taxes as a Result of Tax Relief Provided Since 2006 by Family Income, 2013
Source: Department of Finance.
Making Tariffs Fairer for Canadians
Some products consistently cost more in Canada compared to the exact same products sold in the United States. These price discrepancies persist despite the considerable appreciation of the Canadian dollar relative to the United States dollar over the past several years.
The Government shares Canadians’ concerns about the Canada-U.S. price gap and wants to see lower prices for consumers. At the Government’s request, the Standing Senate Committee on National Finance examined this issue in detail, identifying a number of possible factors including Canada’s tariffs.
In order to lower prices for Canadian families, Economic Action Plan 2013 proposes to eliminate all tariffs on baby clothing and sports and athletic equipment. The latter includes products such as ice skates, hockey equipment, skis and snowboards, golf clubs and other equipment to promote physical fitness and healthy living, consistent with past initiatives such as the Children’s Fitness Tax Credit.
First-Time Donors Credit
To encourage charitable giving by new donors, the Budget proposes to introduce an increased federal tax credit for a first-time donor on up to $1,000 of donations. This increased tax credit will add 25% to the current credit. Consequently, for donations of up to $200, there will be a credit of 40%, as opposed to the current 15%, and for donations in excess of $200, there will be a credit of 54%, as opposed to the current 29%. This increased tax credit only applies to cash donations, as opposed to donations in kind.
A first-time donor is an individual (other than a trust), including their spouse or common-law partner, who has not claimed the donation tax credit in any year after 2007. First-time donor couples may share the increased tax credit. This increased tax credit will be available for donations made on or after the Budget and prior to 2018. In addition, this increased credit may only be claimed in one taxation year.