The Minister of Finance, James M. Flaherty,
presented the 2007 budget in the House of Commons this afternoon at 4:00 pm EDT.
The following is a summary of the highlights contained in the budget.
Economiccontext
·The Finance Minister is projecting a surplus of
$9.2 billion for the 2006-07 fiscal year after taking
into account measures proposed in this budget.
·Canada’s
unemployment rate of 6.1% (February 2007) is the lowest in 32 years and is
expected to continue at historically low rates.
·Real GDP growth for 2007 is expected to be down
from prior forecasts to 2.3%, but is expected to increase to 2.9% in 2008.
·Risks to the Canadian economy include lower
productivity growth, concern that the slowdown in the U.S. housing market will reduce U.S.
consumer spending more than anticipated, and the volatility of oil prices.
Measuresconcerning
businesses
·The rate of capital
cost allowance (CCA) for certain assets acquired on or after March 19, 2007,
will be changed as follows:
oBuildings used for manufacturing or processing, to
10% from 4%.
oOther non-residential buildings, to 6% from 4%.
oComputer equipment, to 55% from 45%.
oNatural gas distribution pipelines, to 6% from 4%.
oLiquefied natural gas facilities, to 8% from 4%.
oManufacturing and processing machinery and
equipment, to 50% from 30% for equipment acquired prior to 2009 (straight-line
depreciation).
·The accelerated rate of CCA for oil sands projects will be phased out
over the period from 2011 to 2015.
·The eligibility for accelerated CCA rates for clean energy generation assets in class
43.1 and 43.2 will be extended to wave and tidal energy and to a broader range
of applications involving active solar heating, photovoltaics,
stationary fuel cells, production of biogas from organic waste, and pulp and
paper waste fuels for assets acquired on or after March 19, 2007. The
eligibility for class 43.2 will be extended to assets acquired before
2020.
·Corporations making a donation of medicines from their inventory will be eligible for an
additional deduction equal to the lesser of its cost or 50% of the amount by
which the fair market value exceeds its cost.
·Elimination
of withholding tax on interest paid between Canada and the United States in the first calendar
year following the entry into force of changes to the Canada-U.S. tax treaty
for persons dealing at arm’s length. For non-arm’s-length interest payments,
the maximum withholding rate will be reduced to 7%, 4%, and 0% for the first
year, second year and third and subsequent years following entry into force of
the treaty. It is intended that withholding tax be eliminated on interest paid
to all arm’s-length non-residents, regardless of their country of
residence.
·Adoption of an International
Tax Fairness Initiative that will:
oEliminate the deductibility of interest on debt incurred by corporations to finance foreign affiliates.
Instead, interest expense will be pooled for deduction (net of exempt surplus
received) if the foreign affiliate’s shares generate non-exempt income for the
corporation. The restriction will apply to interest payable after 2007 on new debt
incurred on or after March 19, 2007, after 2008 for existing non-arm’s-length
debt, and after 2009 for existing arm’s-length debt.
oA Canadian taxpayer will be required to hold at
least a 10% interest in a foreign paying entity in order to have the payments
treated as active business income
for years that begin after 2008.
oCanada will require all new tax treaties and
revisions to existing treaties to include the new Organisation
for Economic Co-operation and Development (OECD) standards in relation to
exchange of tax information.
oThe definition of exempt surplus will be extended
to active business income from non-treaty jurisdictions.
·The concept of a prescribed stock exchange will be replaced with a new three-tier
system which is designed to ease the section 116 clearance certificate
requirements.
·Introduction of an investment tax credit for child care spaces to encourage businesses
to create licensed child care spaces for the children of their employees equal
to 25% of eligible expenditures to a maximum credit of $10,000 per child care
space created.
·The threshold amount, above which corporations are
required to pay corporate income tax instalments, will be raised to $3,000 for years
beginning after 2007. In addition, the frequency of instalment
payments for small Canadian-controlled private corporations (CCPCs) will be changed to a quarterly basis.Similar changes apply to payroll remittances
and goods and services tax/harmonized sales tax (GST/HST) remittances.
·Over the coming year, the government will identify
opportunities to improve the scientific
research and experimental development (SR&ED) program, including its
administration, to further encourage research and development within the
business sector in Canada.
·The budget proposes a temporary financial incentive
for provincial governments to eliminate their capital taxes (including capital tax on financial institutions). To
be eligible for the federal payment, a province must eliminate or restructure
its existing capital tax system by January 1, 2011.
Measuresconcerningindividuals
·The budget proposes to introduce the Working Income Tax Benefit (WITB),
effective for the 2007 taxation year. The WITB will provide up to $500 for
single individuals ($1,000 for families) and will be phased out at a rate of
15% of net family income in excess of $9,500 ($14,500 for families). The WITB will
include an additional disability supplement for individuals eligible for the
disability tax credit (DTC).
·The budget proposes a new Registered Disability Savings Plan (RDSP) for individuals eligible
for the DTC based on the existing registered education savings plan (RESP)
design. Contributions will be limited to a lifetime maximum of $200,000 with no
annual limit. RDSP contributions will qualify for a Canada Disability Savings Grant
at varying rates depending on family net income and the amount contributed. Annual
Canada Disability Savings Bond payments of up to $1,000 will be paid annually
to the RDSPs of low and modest-income beneficiaries
and families regardless of contributions to an RDSP.
·Budget 2007 proposes to eliminate the taxation of
capital gains arising from donations of publicly listed securities to private foundations. At the same time,
the budget contains proposals requiring private foundations to monitor the
percentage of each class of shares held by the foundation and non-arm’s-length
persons and under certain circumstances to divest of the excess holdings.
·The $4,000 annual registered education savings plan (RESP) contribution limit will be
eliminated and the lifetime RESP contribution limit will be increased to
$50,000 from $42,000. The maximum annual Canada Education Savings Grant (CESG)
will be increased to $500 from $400 beginning in 2007.
·Scholarships
and bursaries to attend elementary and secondary schools will be fully
exempted from income starting in 2007.
·The budget proposes a new $2,000 child tax credit which will provide tax
relief of up to $310 for each child under the age of 18, effective beginning in
2007.
·Beginning in 2007, the spousal and related credits will be increased to the same level as
the basic personal credit.
·The non-refundable
public transit tax credit for the cost of monthly public transit passes will
be extended to accommodate new electronic fare products and weekly passes used
on an ongoing basis.
·The lifetime
capital gains exemptions realized on the disposition of qualified farm or
fishing property or qualified small business corporation shares will be
increased from $500,000 to $750,000. This increase will apply to dispositions
of property that occur on or after March 19, 2007.
·The budget proposes to increase, over five-years,
the deductibility of truck drivers’ meal
expenses from 50% to 80%.
·The 2007 budget proposes to accommodate phased retirement by allowing an
employee to receive pension benefits from a defined benefit pension plan (RPP)
while simultaneously accruing further pension benefits, subject to certain constraints.
·Budget
2007 proposes to increase, for the 2007 and subsequent years, the conversion age for RPPs
and RRSPs to 71 years of age from 69 years of age.Transitional measures will benefit
individuals who turn 69, 70 and 71 in 2007.
·Qualified
investments for RRSPs and other
registered plans will be extended to include a debt obligation that has an
investment grade rating and that is part of a minimum $25 million issuance and
any security that is listed on a designated stock exchange.
·Budget 2007 proposes to extend the eligibility for
the mineral exploration tax credit
to flow-through share agreements entered into on or before March 31, 2008.
·Instalment
thresholds for individuals will be raised to $3,000 ($1,800 for individuals
resident in Quebec)
applicable to the 2008 and subsequent taxation years.
GST and other
measures
·The budget confirms the elimination of the Visitor Rebate Program effective April
1, 2007. A new Foreign Convention and Tour Incentive Program will replace the
Visitor Rebate Program.
·The budget proposes to increase the travellers’ exemption to $400 from $200 for
returning Canadian residents who are out of the country for 48 hours or more.
·Budget 2007 proposes that all supplies, made after March
19, 2007, of intangible personal
property (IPP) made to non-residents who are not registered for GST/HST
purposes be zero-rated subject to certain exceptions.
·The Excise Tax Act will be amended to repeal the excise tax exemptions for renewable fuels,
including biodiesel and alcohol-based fuels. These
fuels will be included within the excise tax structure that applies to gasoline
and diesel fuel.
·The budget introduces a Vehicle Efficiency Incentive structure that will include a new
rebate of up to $2,000 for the purchase of a new fuel-efficient vehicle along
with a Green Levy of up to $4,000 for new fuel-inefficient vehicles.
·The budget proposes to clarify the legislative
authority that underlies the Canada Revenue Agency’s long-standing
administrative practice of paying end-user refunds for diesel fuel.
·The budget proposes to waive any non-resident
withholding tax liability of the International Olympic Committee and the
International Paralympic Committee.In addition, non-resident athletes and other
non-resident individuals will not be taxed as a result of their participation
in the 2010 Games in Vancouver.
·Tax measures proposed in the 2006 budget will be
implemented.
For further details, we refer
you to the Department of Financeweb site, where you can access the official budget
documents without charge.
Visit
our email subscription page
to subscribe to our publications, or to modify or cancel your subscription.
Visit
our Tax homepage
to learn about our services.
