This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Find out more here.  

Canadian Budget Focuses On 'Tax Fairness'

Thursday, March 23, 2017

The tax measures contained in Canadian Finance Minister Bill Morneau's second Budget are focused on closing loopholes, cracking down on tax evasion and improving tax reliefs for the "middle class."

Morneau delivered the Budget on March 22. In his Budget speech, he said: "Going forward, we will close loopholes that result in unfair tax advantages for some at the expense of others. We will eliminate inefficient tax measures, especially those that disproportionately benefit the wealthy. And we will work with the provinces and territories to crack down on those who hide their identity to avoid paying taxes."

According to Budget documents, the Government intends to take the following actions to close loopholes in the tax system:

  • Prevent the avoidance or deferral of income tax through the use of offsetting derivative positions in straddle transactions;
  • Clarify the intended meaning of "factual control" under the Income Tax Act for the purpose of determining who has control of a corporation, in order to prevent inappropriate access to supports such as the small business tax rate and the enhanced refundable Scientific Research and Experimental Development Tax Credit for small businesses;
  • Prevent the avoidance of tax on income from the insurance of Canadian risks, by extending the foreign-affiliate base erosion rules to foreign branches of Canadian life insurers; and
  • Extend to the Registered Education Savings Plans and Registered Disability Savings Plans anti-avoidance rules similar to those currently applicable in connection with Tax-Free Savings Accounts and Registered Retirement Savings Plans.

The Government will also further review the use of tax planning strategies involving private corporations that inappropriately reduce the personal taxes of high-income earners. The Government will at the same time consider whether there are features of the current income tax system that have an inappropriate, adverse impact on genuine business transactions involving family members.

The Government will release a paper in the coming months that will set out the nature of these issues in more detail, along with a range of proposed policy responses.

In addition, the Budget will invest an extra CAD523.9m (USD393m) over five years in activities designed to prevent tax evasion and improve tax compliance. The funding will enable the Canada Revenue Agency to: increase its verification activities; hire additional auditors and specialists with a focus on the underground economy; develop robust business intelligence infrastructure and risk assessment systems to target high-risk international tax and abusive tax avoidance cases; and improve the quality of investigative work that targets criminal tax evaders.

The Government expects to raise CAD2.5bn from the anti-evasion measures outlined in the Budget.

The federal Government will collaborate with the provinces and territories on a national strategy "to strengthen the transparency of legal persons and legal arrangements and improve the availability of beneficial ownership information." It is also currently examining how the tax reporting requirements for trusts can be enhanced, to improve the collection of beneficial ownership information.

Another key tax-related focus of the Budget is the elimination of tax measures that have a limited impact, have had low take-up, or duplicate other forms of federal support. The Budget proposes to:

  • Eliminate the Public Transit Tax Credit, effective in respect of transit use occurring after June 30, 2017;
  • Repeal the Good and Services Tax (GST)/Harmonized Sales Tax (HST) rebate payable to non-resident tourists and non-resident tour operators in respect of the accommodation portion of tour packages;
  • Eliminate the surtax on domestic tobacco manufacturers;
  • Repeal the 25 percent Investment Tax Credit for Child Care Spaces;
  • Repeal the additional deduction available to corporations that donate medicine to eligible registered charities; and
  • Allow the First-Time Donor's Super Credit to expire in 2017, as planned.

To improve consistency across the tax system, the Budget also proposes to eliminate the deduction in respect of employee home relocation loans, and remove the tax exemptions for non-accountable expense allowances paid to members of provincial and territorial legislative assemblies and to certain municipal office-holders.

With a view to updating the tax system to reflect the changing nature of the economy, the Budget will:

  • Amend the definition of a taxi business under the Excise Tax Act, with a view to levelling the playing field and ensuring that ride-sharing businesses are subject to the same GST/HST rules as taxis;
  • Eliminate the use of billed-basis accounting for income tax purposes by a limited group of professionals, to avoid giving these professionals a deferral of tax that is not available to other taxpayers; and
  • Eliminate the income tax exemption for insurers of farming and fishing property, which was introduced in 1954 to encourage the provision of insurance in rural districts.

On the personal tax front, the Budget proposes the following changes to the tax credit system:

  • The range of courses eligible for the Tuition Tax Credit will be expanded to include occupational skills courses that are undertaken at a post-secondary institution in Canada;
  • Individuals who require medical intervention in order to conceive a child will be eligible to claim the same expenses under the Medical Expense Tax Credit that would generally be eligible for individuals on account of medical infertility;
  • The Government will introduce a new, non-refundable Canada Caregiver Credit, which will replace the existing Caregiver Credit, Infirm Dependant Credit, and Family Caregiver Tax Credit; and
  • Nurse practitioners will be added to the list of medical practitioners that can certify the impacts of impairments for Disability Tax Credit applicants.

Mailing List

Click here to manage your mailing list preferences, or view our privacy statement.

The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions


Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation


Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees


Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees


Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax


Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision


Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment


Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations


Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations


Madeira: Legal Framework and Formation Rules and Fees


Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004


Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment


Monaco: Legal Framework and Formation Rules and Fees


Nevis: Legal Framework and Formation Rules and Fees


Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama


Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance


Vanuatu Legal Framework and Formation Rules and Fees

Latest News

South Africa Legislates For Budget Tax Changes
The South African Revenue Services and the National Treasury on July 19 released for public comment draft legislation that would give effect to the tax proposals announced in the February Budget.

Australia Improves Financial Services Tax Regime
The Australian Government has moved to clarify the tax treatment of foreign investors, following concerns over the practical operation of the Investment Manager Regime and the new tax system for managed investment trusts.

Jersey Proposes Infrastructure Levy
Jersey is consulting on the introduction of a land development charge, to be called the Jersey Infrastructure Levy.

ADGM Establishes REIT Regime
Abu Dhabi Global Market, the low-tax international financial center, has introduced a private real estate investment trusts regime.

Jersey Research Highlights China HNW Succession Issues
Jersey's financial services promotion agency, Jersey Finance, has published new research on the key challenges facing wealth management practitioners working with China's wealthiest individuals.

NZ Foreign Trust Numbers Expected To Fall
Fewer than 70 out of 11,645 New Zealand foreign trusts have reregistered following the introduction of tougher disclosure and eligibility requirements, with only three weeks left to go before the final deadline.

Abu Dhabi Tax-Free Zone To Launch Foundations
Abu Dhabi Global Market, the low-tax international financial center, is seeking feedback on its proposal to allow the formation of "foundations," a trust-like entity widely used in civil law jurisdictions.

IoM Consults On Funds Sector Rules
The Isle of Man Financial Services Authority, which supervises the island's financial services sector, is seeking feedback on draft guidance dealing with the governance of collective investment schemes.

Dubai Tax-Free Zone Seeing New Business From India
The Dubai International Financial Centre, the leading financial hub in the United Arab Emirates, has become an increasingly popular destination for Indian banks, financial institutions, and fund managers, the zone has said.

Guernsey Issues Warning On 'Sark Company Registry'
The Guernsey Financial Services Commission has issued a warning concerning an entity named "Sark Company Registry," while investigations are ongoing.

Abu Dhabi Free Zone Hopes To Attract Venture Capital Firms
Abu Dhabi Global Market, the low-tax international financial center, has unveiled a regulatory framework for managers of venture capital funds.

Australian Budget Targets Housing, Tax Compliance
Australian Treasurer Scott Morrison's 2017 Budget focused on measures to cool the housing market and crack down on tax avoidance.

Australia Delays Action On Stapled Structures
The Australian Government has decided to extend a review into the taxation of stapled structures. It will not tackle the issue at the upcoming Budget.

BVI Financial Firms Need To Develop New Niches
BVI Finance, the financial services industry promotional agency, has said the industry must actively adapt to target new opportunities and promote new offerings internationally.

ADGM Revises Pooled Fund Capital Req's
Abu Dhabi Global Market, the low-tax international financial center, has revised the capital requirements applicable to managers of collective investment funds, with effect from April 10, 2017.