Commentary

The Honourable Bill Morneau, Minister of Finance, today tabled his fourth federal budget titled “Investing in the Middle Class”.  With this budget, the government addressed four key areas:

• Investing in the Middle Class
• Building a Better Canada
• Advancing Reconciliation
• Delivering Real Change

The following is a brief overview of the key tax measures within these areas.

Budget 2019 does not propose any changes to personal tax rates and further does not propose changes to the capital gains inclusion rate.

Canada Training Benefit (CTB)

Budget 2019 proposes to introduce the CTB to address barriers to professional development for working Canadians.  The CTB will be a refundable tax credit to provide financial support to help cover up to half of eligible tuition and fees associated with training.  Eligible individuals will accumulate $250 each year in a notional account which can be accessed for this purpose.

To accumulate the $250 in respect of a year, an individual must:

• File a tax return for the year;
• Be at least 25 years old and less than 65 years old at the end of the year;
• Be resident in Canada throughout the year;
• Have earnings (including income from an office or employment, self-employment income, maternity and Parental Employment Insurance benefits) of $10,000 or more in the year; and
• Have individual net income for the year that does not exceed the top of the third tax bracket for the year ($147,667 in 2019).

The balance will be communicated to taxpayers through their Notice of Assessment and through the CRA’s My Account portal.  The credit that can be claimed for a taxation year will be equal to the lesser of half of the eligible tuition and fees paid in respect of the tax year and the individual’s notional account balance.  The amount claimed will offset, dollar for dollar, tax otherwise payable or will be refunded to the individual. 

An individual can accumulate up to a maximum of $5,000 over their lifetime.  The balance will expire at the end of the year in which they turn 65.

Tuition and other fees eligible for the CTB will generally be the same as under the existing rules for the Tuition Tax Credit, with the exception that educational institutions outside of Canada will not be eligible.  The portion of fees that are refunded through the CTB will not qualify as eligible expenses under the Tuition Tax Credit.

This measure will apply to the 2019 and subsequent taxation years.  Annual accumulation to the notional account will start based on eligibility in respect of the 2019 taxation year and the credit will be available to be claimed for expenses in respect of the 2020 taxation year.  Thresholds for the CTB will be subject to annual indexation.

EI Training Support Benefit
A new EI Training Support program, expected to be launched in late 2020, would provide up to four weeks of income support, every four years.  This income support – paid at 55 per cent of a person’s average weekly earnings – would help workers cover their living expenses, while training and without their regular pay cheque.    New leave provisions would ensure that workers are entitled to leave and job protection while they are on training and receiving the EI Training Support Benefit.

EI Small Business Premium Rebate
Budget 2019 proposes to introduce an EI Small Business Premium Rebate.  Starting in 2020 any business that pays employer EI premiums equal to or less than $20,000 per year would be eligible for a rebate to offset the upward pressure on EI premiums resulting from the introduction of the new EI Training Support Benefit. 

Home Buyers’ Plan (HBP)

Withdrawal Limit
Budget 2019 proposes to increase the HBP withdrawal limit to $35,000 from $25,000.  The special rules under the HBP apply to facilitate the acquisition of a home that is more accessible or better suited for the personal needs and care of an individual who is eligible for the disability tax credit, will also be modified to provide the same $35,000 withdrawal limit.  This increase in the HBP withdrawal limit will apply to the 2019 and subsequent calendar years in respect of withdrawals made after Budget Day.

Breakdown of a Marriage or Common-Law Partnership
Budget 2019 also proposes to extend access to the HBP in order to help Canadians maintain homeownership after the breakdown of a marriage or common-law partnership.    Generally, an individual will not be prevented from participating in the HBP because they do not meet the first-time home buyer requirement, provided that the individual lives separate and apart from their spouse or common-law partner for a period of a t least 90 days as a result of a breakdown in their marriage or common-law partnership.  The individual will be able to make a withdrawal under the HBP if the individual lives separate and apart from their spouse or common-law partner at the time of the withdrawal and began to live separate and apart in the year in which the withdrawal is made or any time in the four preceding years.  However, in the case where an individual’s principal place of residence is a home owned and occupied by a new spouse or common-law partner, the individual will not be able to make an HBP withdrawal under these rules. 

An individual will be required to dispose of their previous principal place of residence no later than two years after the end of the year in which the HBP withdrawal is made.  The requirement to dispose of the previous principal place of residence will be waived for individual buying out the share of the residence owned by the individual’s spouse or common-law partner.  The existing rule that individual may not acquire the home more than 30 days before making the HBP withdrawal will also be waived in this circumstance.  This measure will apply to HBP withdrawals made after 2019.

First-Time Home Buyer Incentive
Budget 2019 proposes to introduce the First-Time Home Buyers Incentive – which would reduce the amount of money required for an insured mortgage without increasing the amount the person must save for a down payment.  Canada Mortgage and Housing Corporation (CMHC) would give eligible first-time home buyers the ability to lower their borrowing costs by sharing the cost of buying a home with CMHC.  The incentive would provide funding of 5 or 10 per cent of the home purchase price.  No ongoing monthly payments are required.  The buyer would repay the incentive at re-sale. 

Change in Use Rules for Multi-Unit Residential Properties

Currently, when part of a multi-unit resident property, such as a duplex, has a change in use of the property, a taxpayer cannot elect out of the deemed disposition that arises on a change in use of part of the property.  Budget 2019 proposes to allow a taxpayer to elect that the deemed disposition that normally arises on a change in use of part of the property not apply.  This measure will apply to change in use of property that occur on or after Budget Day.

Permitting Additional Types of Annuities Under Registered Plans

To provide Canadian with greater flexibility in managing their retirement savings, Budget 2019 proposes to permit two new types of annuities under the tax rules for certain registered plans:

• Advanced life deferred annuities will be permitted for Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Fund (RRIF), deferred profit-sharing plan (DPSP), pooled registered pension plan (PRPP) and defined contribution registered pension plan (RPP); and
• Variable payment life annuities will be permitted under a PRPP and defined contribution RPP.

The measures will apply to the 2020 and subsequent taxation years. 

Registered Disability Savings Plan (RDSP) – Cessation of Eligibility for the Disability Tax Credit (DTC)

When a beneficiary of an RDSP ceases to be eligible for the DTC, no contributions may be made to, and no Canada Disability Savings Grants and Canada Disability Savings Bonds may be paid into, the RDSP. The income tax rules generally require that the RDSP be closed by the end of the year following the first full year throughout which the beneficiary is not eligible for the DTC. 

Budget 2019 proposes to remove the time limitation on the period that an RDSP may remain open after a beneficiary becomes ineligible for the DTC and to eliminate the requirement for medical certification that beneficiary is likely to become eligible for the DTC in the future in order for the plan to remain open.  The general rules that currently apply in respect of a period during which an election is valid, will apply to an RDSP in any period during which the beneficiary is ineligible for the DTC, with some modification.

This measure will apply after 2020.  An RDSP issuer will not, however, be required to close an RDSP on or after Budget Day and before 2021 solely because the RDSP beneficiary is no longer eligible for the DTC.

Tax Measures for Kinship Care Providers

Canada Worker’s Benefit
Budget 2019 proposes to amend the Income Tax Act (ITA) to clarify that an individual may be considered to be the parent of a child in their care for the purpose of the Canada Worker’s Benefit, regardless of whether they receive financial assistance from a government under a kinship care program.  Kinship care providers will thus be eligible for the Canada Worker’s Benefit amount available for families, provided all other eligibility requirements are met.  This measure will apply for the 2009 and subsequent taxation years. 

Tax Treatment of Financial Assistance Payments
Budget 2019 proposes to amend the ITA to clarify that financial assistance payments received by care providers under a kinship care program are neither taxable, nor included in income for the purposes of determining entitlement to income tested benefits and credits.  This measure will apply for the 2009 and subsequent taxation years. 

Medical Expense Tax Credit

Budget 2019 proposes to amend the ITA to reflect the current regulations for accessing cannabis for medical purposes.  This measure applies to expenses incurred on or after October 17, 2018.

Contributions to a Specified Multi-Employer Plan (SMEP) for Older Members

Budget 2019 proposes to amend the tax rules to prohibit contributions to a SMEP in respect of a member after the end of the year the member attains 71 years of age and to a defined benefit provision of a SMEP if the member is receiving a pension from the plan (except under a qualifying phased retirement program).  The proposed changes will ensure that employers do not make pension contributions on behalf of older SMEP members in these situations from they cannot benefit.  This measure will apply in respect of SMEP contributions made pursuant to collective bargaining agreements entered into after 2019, in relation to contributions made after the date the agreement is entered into.

Pensionable Service Under an Individual Pension Plan (IPP)

Budget 2019 proposes to prohibit IPPs from providing retirement benefits in respect of past years of employment that were pensionable service under a defined benefit plan of an employer other than the IPP’s participating employer (or its predecessor employer).  Any assets transferred from a former employer’s defined benefit plan to an IPP that relate to benefits provided in respect of prohibited service will be considered to be a non-qualifying transfer that is required to be included in the income of the member for income tax purposes.  This measure applies to pensionable service credited under an IPP on or after Budget Day.

Mutual Funds: Allocation to Redeemers Methodology

Deferral
Budget 2019 proposes to introduce a new rule that would deny a mutual fund trust a deduction in respect of the portion of an allocation made to a unit holder on a redemption of a unit of the mutual fund trust that is greater than the capital gain that would otherwise have been realized by the unit holder on the redemption, if the following conditions are met:

• The allocation amount is a capital gain; and
• The unitholder’s redemption proceeds are reduced by the allocation.

This measure will apply to taxation years of mutual fund trusts that begin on or after Budget Day.

Character Conversion
Budget 2019 proposes to introduce a new rule that will deny a mutual fund trust a deduction in respect of an allocation made to a unitholder on a redemption, if

• The allocated amount is ordinary income; and
• The unitholder’s redemption proceeds are reduced by the allocation.

This measure will apply to taxation years of mutual fund trusts that begin on or after Budget Day.

Carrying on Business in a Tax-Free Savings Account (TFSA)

To recognize that a TFSA’s holder is typically in the best position to know whether the activities of the TFSA constitute carrying on a business, Budget 2019 proposes that the joint and several liability for tax owing on income from carrying on a business in a TFSA be extended to the TFSA holder.  The joint and several liability of a trustee of a TFSA at any time in respect of business income earned by a TFSA will be limited to the property held in the TFSA at that time plus the amount of all distributions of property from the TFSA on or after the date that the notice of assessment is sent. This measure will apply to the 2019 and subsequent taxation years. 

Business Income Tax Measures

Corporate Tax Rates

Budget 2019 does not propose any changes to business income tax rates.

Tax Rate	2019	2020	2021
Federal small business tax rate	9.0	9.0	9.0
Federal general business tax rate	15.0	15.0	15.0

Employee Stock Options

The government will move toward aligning Canada’s employee stock option tax treatment with that of the United States by applying a $200,000 annual cap on employee stock option grants (based on the fair market value of the underling shares) that may receive tax-preferred treatment for employees of large, long-established, mature firms.  Under this approach, the vast majority of employees of these firms that may receive stock option benefits would be unaffected. 

For start-ups and rapidly growing Canadian businesses, employee stock option benefits would remain uncapped.  In this manner, start-ups and emerging Canadian businesses will be protected and maintain the ability to use employee stock options as an effective tool to attract and reward employees and accelerate their growth.

Further details of this measure will be released before the summer of 2019.  Any changes would apply on a go-forward basis only and would not apply to employee stock options granted prior to the announcement of legislative proposals to implement any new regime.

Support for Canadian Journalism

Budget 2019 proposes to introduce three new tax measures to support Canadian journalism:

• Allowing journalism organizations to register as qualified donees;
• A refundable labour tax credit for qualifying journalism organizations; and
• A non-refundable tax credit for subscriptions to Canadian digital news.

An independent panel will be established to recommend eligibility criteria for the purposes of these measures. Once the panel has made its recommendations, eligibility of organizations will be evaluated, and a recognition process will be put in place. 

Qualified Canadian Journalism Organizations  
Qualified Canadian Journalism Organization (QCJO) status is a necessary condition for each of the three measures. In order to be a QCJO, an organization will be required to be recognized as meeting criteria developed by the independent panel. This recognition will be made by an administrative body that will be established for this purpose.

A QCJO will be required to be organized as a corporation, partnership or trust. It will need to operate in Canada and meet additional conditions, depending on how it is organized. To qualify as a QCJO, a corporation will be required to be incorporated and resident in Canada. In addition, its chairperson (or other presiding officer) and at least 75 per cent of its directors must be Canadian citizens. In general, in order for a partnership or trust to qualify, such corporations, along with Canadian citizens, must own at least 75 per cent of the interests in it.

In addition, an organization will be required to meet the following conditions to be a QCJO: 

• it is primarily engaged in the production of original news content and in particular, the content
  • must be primarily focused on matters of general interest and reports of current events, including coverage of democratic institutions and processes, and
  • must not be primarily focused on a particular topic such as industry specific news, sports, recreation, arts, lifestyle or entertainment;
• it regularly employs two or more journalists in the production of its content who deal at arm’s length with the organization;
• it must not be significantly engaged in the production of content
  • to promote the interests, or report on the activities, of an organization, an association or their members,
  • for a government, Crown corporation or government agency, or
  • to promote goods or services; and
  • it must not be a Crown corporation, municipal corporation or government agency.

Qualified Donee Status
Budget 2019 proposes to add registered journalism organizations as a new category of tax-exempt qualified donee. In order to qualify for registration, a QCJO will be required to apply to the Canada Revenue Agency (CRA) to be registered as a qualified donee and meet certain additional conditions, as described below.

Registered journalism organizations will be required to be corporations or trusts and to have purposes that exclusively relate to journalism. Any business activities carried on by these organizations will be required to be related to their purposes. For example, the sale of news content and advertising would be considered activities related to journalism. These organizations will not be permitted to distribute their profits, if any, or allow their income to be available for the personal benefit of certain individuals connected with the organization.

To ensure that registered journalism organizations are not used to promote the views or objectives of any particular person or related group of persons, a registered journalism organization:

• will be required to have a board of directors or trustees, each of whom deals at arm’s length with each other; 
• must not be factually controlled by a person (or a group of related persons); and
• must generally not, in any given year, receive gifts that represent more than 20 per cent of its total revenues, including donations, from any one source (excluding bequests and one-time gifts made on the initial establishment of the particular registered journalism organization).

To provide transparency, the names of all registered journalism organizations will be listed on the website of the Government of Canada. Registered journalism organizations will be required to file an annual return with the CRA containing information on their activities. In addition, registered journalism organizations will be required to disclose, in their information returns, the name(s) of any donors that make donations of over $5,000 and the amount donated. Similar to registered charities and registered Canadian amateur athletic associations, these information returns will be made public along with certain additional information.

This measure will apply as of January 1, 2020.

Refundable Labour Tax Credit
Budget 2019 proposes to introduce a 25-per-cent refundable tax credit on salary or wages paid to eligible newsroom employees of qualifying QCJOs. This will be subject to a cap on labour costs of $55,000 per eligible newsroom employee per year, which will provide a maximum tax credit in respect of eligible labour costs per individual per year of $13,750. To qualify for this credit, a QCJO must be a corporation, partnership or trust primarily engaged in the production of original written news content.

A QCJO that is a corporation will be required to meet the following additional requirements in order to qualify:

• if it is a public corporation, it must be listed on a stock exchange in Canada and not be controlled by non-Canadian citizens; and 
• if it is a private corporation, it must be at least 75-per-cent owned by Canadian citizens or by public corporations described above.

Eligible expenses will include salary or wages paid to eligible newsroom employees in respect of a taxation year and will be reduced by the amount of any government or other assistance received by the QCJO in the taxation year. In addition, salary or wages will be eligible expenses of an organization only if they are in respect of a period throughout which it is a QCJO. 

A registered journalism organization, which will be exempt from income tax, may also be entitled to this refundable tax credit in respect of its eligible expenses. 

This measure will apply to salary or wages earned in respect of a period on or after January 1, 2019. The administrative body will be able to recognize organizations as of that date, in order to ensure the credit is available as intended.

Personal Income Tax Credit for Digital Subscriptions

Budget 2019 proposes a temporary, non-refundable 15-per-cent tax credit on amounts paid by individuals for eligible digital news subscriptions. This will allow individuals to claim up to $500 in costs paid towards eligible digital subscriptions in a taxation year, for a maximum tax credit of $75 annually. In the case of combined digital and newsprint subscriptions, individuals will be limited to claiming the cost of a stand-alone digital subscription.

Eligible digital subscriptions are those that entitle a taxpayer to access content provided in a digital form by a QCJO that is primarily engaged in the production of written content. A subscription with a QCJO carrying on a broadcasting undertaking (as defined in the Broadcasting Act) will not qualify for this credit.

Amounts paid to an organization will be eligible only if, at the time they are paid, the organization is a QCJO. If an organization ceases to qualify as a QCJO, that will not cause amounts paid by individuals for subscriptions prior to the loss of QCJO status to cease to qualify for the credit.

This credit will be available in respect of eligible amounts paid after 2019 and before 2025.

Business Investment in Zero-Emission Vehicles

Budget 2019 proposes to provide $300 million over three years, starting in 2019-20, to Transport Canada to introduce a new federal purchase incentive of up to $5,000 for electric battery or hydrogen fuel cell vehicles with a manufacturer’s suggested retail price of less than $45,000.  Program details to follow.

Budget 2019 proposes to provide a temporary enhanced first-year CCA rate of 100 per cent in respect of eligible zero-emission vehicles. Two new CCA classes will be created:  Class 54 for zero-emission vehicles that would otherwise be included in Class 10 or 10.1; and Class 55 for zero-emission vehicles that would otherwise be included in Class 16. In the case of Class 54, there will be a limit of $55,000 (plus sales taxes) on the amount of CCA deductible in respect of each zero-emission passenger vehicle. This new $55,000 limit will be reviewed annually to ensure that it remains appropriate.

To be eligible for this first-year enhanced allowance, a vehicle must:

• be a motor vehicle as defined in the ITA (i.e., an automotive vehicle for use on streets and highways, but not including a trolley bus or vehicle operated exclusively on rail); 
• otherwise be included in Class 10, 10.1 or 16;
• be fully electric, a plug-in hybrid with a battery capacity of at least 15 kWh or fully powered by hydrogen; and
• not have been used, or acquired for use, for any purpose before it is acquired by the taxpayer.

Vehicles in respect of which assistance is paid under the new federal purchase incentive announced in Budget 2019 will be ineligible.

This proposal will also have implications for the Goods and Services Tax/Harmonized Sales Tax (GST/HST). Accordingly, Budget 2019 proposes to amend the GST/HST to ensure that the treatment of expenses incurred in respect of zero-emission passenger vehicles under the GST/HST parallels the proposed income tax treatment of these vehicles. This will generally result in an increase in the amount of GST/HST that businesses can recover in respect of zero-emission passenger vehicles, subject to limits similar to those under the income tax system.

Application and Phase-Out
This measure will apply to eligible zero-emission vehicles acquired on or after Budget Day and that become available for use before 2028, subject to a phase-out for vehicles that become available for use after 2023 (see table below). A taxpayer will be able to claim the enhanced allowance in respect of an eligible zero-emission vehicle only for the taxation year in which the vehicle first becomes available for use. 

Rates for the First-Year Enhanced Allowance
	First-Year Enhanced Allowance
March 19, 2019 – 2023	100%
2024 – 2025	75%
2026 – 2027	55%
2028 onward	–

CCA will be deductible on any remaining balances in the new classes on a declining-balance basis at a rate of 30 per cent for Class 54 and 40 per cent for Class 55.

Additional Rules
Under the short-taxation-year rule, the amount of CCA that can be claimed in a taxation year must generally be prorated where the taxation year is less than 12 months. This rule will apply to the enhanced allowance for zero-emission vehicles.

A special rule will apply to adjust the proceeds of disposition to be deducted from the undepreciated capital cost of the property on the disposition of a zero-emission vehicle that is subject to the capital cost limit of $55,000. Specifically, the proceeds of disposition will be adjusted based on a factor equal to the capital cost limit of $55,000 as a proportion of the actual cost of the vehicle.

An election will be available to forgo Class 54 or 55 treatment and instead include a zero-emission vehicle in Class 10, 10.1 or 16, as the case may be.  

Small Business Deduction – Farming and Fishing

To provide greater flexibility to farming and fishing businesses, Budget 2019 proposes to eliminate the requirement that sales be to a farming or fishing cooperative corporation in order to be excluded from specified corporate income. As such, this exclusion will apply to the income of a CCPC from sales of the farming products or fishing catches of its farming or fishing business to any arm’s length purchaser corporation. However, consistent with the existing rules, amounts allocated to a CCPC as patronage payments from a purchaser corporation will not qualify for this exclusion. 

This measure will apply to taxation years that begin after March 21, 2016.

Scientific Research and Experimental Development Program

Budget 2019 proposes to repeal the use of taxable income as a factor in determining a CCPC’s annual expenditure limit for the purpose of the enhanced SR&ED tax credit. As a result, small CCPCs with taxable capital of up to $10 million will benefit from unreduced access to the enhanced refundable SR&ED credit regardless of their taxable income. The enhanced SR&ED tax credit will continue to be reduced where taxable capital employed in Canada for the previous taxation year is between $10 million and $50 million.

This measure will apply to taxation years that end on or after Budget Day.

Character Conversion Transactions

Budget 2019 proposes an amendment that introduces an additional qualification for the commercial transaction exception in the definition “derivative forward agreement” as the exception applies to purchase agreements. In general terms, this amendment will provide that the commercial transaction exception is unavailable if it can reasonably be considered that one of the main purposes of the series of transactions, of which an agreement to purchase a security in the future (or an equivalent agreement) is part, is for a taxpayer to convert into a capital gain an amount paid on the security, by the issuer of the security, during the period that the security is subject to the agreement.

This measure will apply to transactions entered into on or after Budget Day. It will also apply after December 2019 to transactions that were entered into before Budget Day including those that extended or renewed the terms of the agreement on or after Budget Day. This grandfathering will incorporate the same growth limits used under the transitional relief provided under the derivative forward agreement rules introduced in 2013 to ensure that no new money flows into grandfathered transactions on or after Budget Day.

International Tax Measures

Transfer Pricing Measures

Budget 2019 proposes two measures concerning the relationship between the transfer pricing rules in Part XVI.1 and other provisions of the ITA.

Order of Application of the Transfer Pricing Rules
To provide greater certainty in the application of the income tax rules, Budget 2019 proposes to amend the ITA to clarify that the transfer pricing rules in Part XVI.1 apply in priority to the application of the provisions in other parts of the ITA, including the provisions relating to income computation in Part I. The current exceptions to the application of the transfer pricing rules that pertain to situations in which a Canadian resident corporation has an amount owing from, or extends a guarantee in respect of an amount owing by, a controlled foreign affiliate will continue to apply.

This measure will apply to taxation years that begin on or after Budget Day.

Applicable Reassessment Period
Budget 2019 proposes to amend the ITA to provide that the definition “transaction” used in the transfer pricing rules also be used for the purposes of the extended reassessment period relating to transactions involving a taxpayer and a non-resident with whom the taxpayer does not deal at arm’s length.

This measure will apply to taxation years for which the normal reassessment period ends on or after Budget Day.

Foreign Affiliate Dumping

To better achieve the policy objectives of the foreign affiliate dumping rules, Budget 2019 proposes to extend the application of these rules to Corporations Resident in Canada (CRICs) that are controlled by

• a non-resident individual,
• a non-resident trust, or 
• a group of persons that do not deal with each other at arm’s length, comprising any combination of non-resident corporations, non-resident individuals and non-resident trusts.

Related persons are considered not to deal with each other at arm’s length for income tax purposes. To ensure that a non-resident trust will be considered to be related to another non-resident person in circumstances similar to where a non-resident corporation would be so related, the proposals include an extended meaning of “related” that applies for the purpose of determining whether a non-resident trust does not deal at arm’s length with another non-resident person.

This measure will apply to transactions and events that occur on or after Budget Day. 

Cross-Border Share Lending Arrangements

Canadian Shares
To better reflect the policy objective that the Canadian dividend withholding tax consequences for a non-resident lender under a share loan should generally be the same as if it had continued to hold the lent share, Budget 2019 proposes an amendment to ensure that a dividend compensation payment made under a securities lending arrangement by a Canadian resident to a non-resident in respect of a Canadian share is always treated as a dividend under the characterization rules and, accordingly, always subject to Canadian dividend withholding tax.

Budget 2019 also proposes an amendment to apply the characterization rules not only to a “securities lending arrangement”, as defined under the ITA, but also to a “specified securities lending arrangement”. Budget 2018 introduced the latter definition in the context of a measure intended to prevent taxpayers from realizing artificial losses through the use of equity-based financial arrangements. The definition includes securities loans that are substantially similar to securities lending arrangements.

Finally, Budget 2019 proposes to introduce complementary amendments to ensure that the securities lending arrangement rules cannot be used to obtain other unintended withholding tax benefits. For instance, a rule will be introduced to ensure that the same withholding tax rate under a tax treaty applies to a dividend compensation payment made to a non-resident as to a dividend that would have been paid to that non-resident had it continued to hold the lent Canadian share.

These proposed amendments will apply to compensation payments that are made on or after Budget Day unless the securities loan was in place before Budget Day, in which case the amendments will apply to compensation payments that are made after September 2019.

Foreign Shares
Budget 2019 proposes an amendment to broaden an existing exemption from Canadian dividend withholding tax so that it includes any dividend compensation payment made by a Canadian resident to a non-resident under a securities lending arrangement if:

• the securities lending arrangement is “fully collateralized”; and
• the lent security is a foreign share.

This proposed amendment will apply to dividend compensation payments that are made on or after Budget Day.

GST/HST Health Measures

Budget 2019 proposes to extend the application of the GST/HST relief to certain biologicals, medical devices and health care services to reflect the evolving nature of the health care sector. 

Human Ova and In Vitro Embryos
Budget 2019 proposes to provide GST/HST relief for human ova and in vitro embryos, similar to the relief provided for human sperm.  In line with the legal framework for assisted human reproduction, it is proposed that supplies and imports of human ova be relieved of the GST/HST, and that imports of human in vitro embryos also be relieved of the GST/HST.  This measure will apply to supplies and imports of human ova made after Budget Day, and to imports of human in vitro embryos made after Budget Day.

Foot Care Devices Supplied on the Order of a Podiatrist or Chiropodist
In recognition of their role in the health care system, Budget 2019 proposes to add licensed podiatrists and chiropodists to the list of practitioners on whose order supplies of foot care devices are zero-rated.  This measure will apply to supplies of these items made after Budget Day.

Multidisciplinary Health Care Services
Budget 2019 proposes to exempt from the GST/HST the supply of multidisciplinary health services.  The relief will apply to a service rendered by a team of health professionals, such as doctors, physiotherapists and occupational therapists, whose services are GST/HST- exempt when supplied separately.  The exemption will apply provided that all or substantially all – generally 90 per cent or more – of the service is rendered by such health professionals acting within the scope of their profession.  This measure will apply to supplies of multidisciplinary health services made after Budget Day. 

 

Cannabis Taxation

New Classes of Cannabis Products

Budget 2019 proposes that edible cannabis, cannabis extracts (including cannabis oils) and cannabis topicals be subject to excise duties imposed on cannabis licensees at a flat rate ($0.01 per milligram) applied on the quantity of total tetrahydrocannabinol (THC), the primary psychoactive compound in cannabis, contained in a final product.  The THC-based duty will be imposed at the time of packaging of a product and become payable when it is delivered to a non-cannabis licensee (e.g. a provincial wholesaler, retailer or individual consumer).   The proposed changes to the excise duty framework will come into effect on May 1, 2019.

 

Budget 2019 confirms the Government’s intentions to proceed with the following previously announced tax and related measures, as modified to take in account consultations and deliberations since their release:

• Income tax measures announced on November 21, 2018 in the Fall Economic Statement to
  • provide for the Accelerated Investment Incentive,
  • allow the full cost of machinery and equipment used in the manufacturing and processing of goods, and the full cost of specified clean energy equipment, to be written off immediately,
  • extend the 15-per-cent mineral exploration tax credit for an additional five years, and
  • ensure that business income of communal organizations retains its character when it is allocated to members of the communal organization for tax purposes;
• Regulatory proposals released on September 17, 2018 relating to the taxation of cannabis;
• Remaining legislative and regulatory proposals released on July 27, 2018 relating to the Goods and Services Tax/Harmonized Sales Tax;
• The measures referenced in Budget 2018 to support employees who must reimburse a salary overpayment to their employers due to a system, administrative or clerical error;
• The income tax measures announced in Budget 2018 to implement enhanced reporting requirements for certain trusts to provide additional information on an annual basis;
• The income tax measures announced in Budget 2018 to facilitate the conversion of Health and Welfare Trusts to Employee Life and Health Trusts;
• Measures confirmed in Budget 2016 relating to the Goods and Services Tax/Harmonized Sales Tax joint venture election;
• The income tax measures announced in Budget 2016 expanding tax support for electric vehicle charging stations and electrical energy storage equipment; and
• The income tax measures announced in Budget 2016 on information reporting requirements for certain dispositions of an interest in a life insurance policy.

Budget 2019 also affirms the Government’s commitment to move forward as required with technical amendments to improve the certainty of the tax system.