Heading into 2018, tax expert Jamie Golombek expects more changes to tax rules.
After a “momentous year” for taxes in 2017, with the federal government’s changes to rules for private corporations, he expects more in 2018.
One issue he’s following is the possibility of reform related to various tax credits.
There are dozens of credits still available, he says, but “we did see this current government eliminate various so-called boutique tax credits last year,” including the fitness and arts credits for children, the education and textbook amounts for students, and the public transportation credit, says Golombek, managing director for tax and estate planning at CIBC Financial Planning and Advice. (In Ontario, the provincial government introduced a seniors’ public transit tax credit, effective as of July 1, 2017.)
At the same time, the government introduced a teachers’ supply credit. “So what’s going to happen? There’s supposed to be a study to be released shortly on the future of credits in Canada,” says Golombek, and that report will look at their effectiveness and cost.
Why? The administration of tax credits in Canada can be “extremely complex,” he says. “Just last year, when we had the public transportation credit, there were cases that ended up going to court where a judge had to review whether or not a taxpayer had taken the right number of rides in a given period of time to qualify for this 15% credit, and, in some cases, [it was] worth maybe only $20 to $30 a month.”
As a result, “many people are calling, perhaps, for either simplification or elimination of many of the credits. And I wouldn’t be surprised if we see that [as] part of the tax reform in 2018.” Golombek forecasts that, in crafting the 2018 federal budget, the government will take “a long, hard look at a variety of credits with a view to their elimination.”
This is also happening south of the border, says Golombek, in proposals aimed at “streamlining all of the different deductions,” including the medical expense deduction.
“Canada has very general medical expense credits,” Golombek adds, and the future of those could be uncertain if the same move is made here.
Private corp proposals
The pending introduction of passive investment rules, part of the Liberal government’s controversial changes announced last summer and revised in the fall, is also on Golombek’s radar.
“We’ll have to wait to see what the government is doing as it reviews the 21,000 submissions on the various tax rules,” he says. “We were told that in the federal budget in 2018, we would have an introduction of the passive investment rules,” so he’ll be looking to see how it will be legislated.
In previous commentary, Golombek said the government “has announced there will be full grandfathering on the retained earnings of passive [investment] income earned inside a corporation,” meaning “there’s no need to pull earnings out or put extra in.” But if other rules eventually come into play, he adds, “then the treatment of passive income is something to consider for future years.”
On Dec. 13, the federal government introduced revised income sprinkling measures to clarify how its pending changes to the Income Tax Act will be implemented. The government said only 3% of private corporations would be impacted by the changes.
The good news is even though those rules are in effect as of Jan. 1, 2018, business owners have one year to comply.
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