Gowlings National Tax Group comment on the 2015 Canadian fiscal budget

Finance Minister Joe Oliver faced formidable challenges, both economic and political, in delivering his first Budget.

In a time of depressed oil prices, and mere months ahead of the next federal election, it appears he felt it was imperative to follow through with prior commitments to balance the budget, provide “goodies” for as many Canadians as possible to consider when heading to the polls, and continue the emphasis of prior budgets on tax integrity and fairness measures.

On the first point, Budget 2015 announces that the books are balanced and projects a surplus of $1.4 billion in 2015-2016.

On the “goodies” front, Budget 2015 has something for just about everyone. Small businesses will benefit from an increase in the small business deduction phased in over four years, while manufacturers have an incentive to invest in new manufacturing and processing equipment over the next decade through an accelerated capital cost allowance (CCA) deduction. Charities stand to benefit from a proposed capital gains exemption where the proceeds from the sale of private corporation shares or real estate are donated to qualified donees, as well as a measure permitting charities to invest in certain limited partnerships. Even farmers and fishers benefit, with an increase in the capital gains exemption for qualified farm and fishing property to $1 million.

Canada 1 (PD)Despite the “goodies,” or perhaps to pay for them, Budget 2015 maintains the focus of the Government of Canada over the last several years on tax fairness and integrity. Since 2006, the Government of Canada has introduced over 90 measures addressing so-called “tax loopholes,” clarifying tax rules, targeting perceived international tax avoidance and generally improving the integrity of the tax system.

Budget 2015 is no exception.

There are new rules dealing with “synthetic equity arrangements,” an overhaul of the existing anti-avoidance rule that prevents the conversion of taxable capital gains into tax-free inter-corporate dividends and a second volley targeting captive insurers. As well, Budget 2015 reaffirms the Government of Canada’s commitment to the ongoing international efforts of the Organisation for Economic Co-operation and Development (OECD) and G-20 relating to base erosion and profit shifting (BEPS), being measures to counter the shifting of profits to low-tax jurisdictions. Budget 2015 also affirms Canada’s commitment to the G-20 proposal for automatic information exchange on tax accounts (to begin in 2018), which will no doubt involve substantial compliance obligations on Canadian banks and other financial institutions. By the same token, Budget 2015 proposes some relief in the form of a simplified T1135 foreign property reporting form for taxpayers with specified foreign property having a cost of less than $250,000.

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