The Liberal government is moving ahead with measures from the 2019 federal budget that stalled before they were implemented, with changes to employee stock options, annuities and mutual fund trusts included in new legislation.
The 344-page bill includes measures related to transfers of commuted values to individual pension plans (IPPs), taxation of mutual funds and ETFs, new annuities under registered plans, and stock option deductions for employees.
While the implementation bill includes measures announced in this year’s budget to boost old age security and child-care spending, the Liberals’ proposal to impose a new tax on luxury vehicles is not part of the legislation.
The bill will implement changes to the Income Tax Act to limit the benefit of the employee stock option deductions taxed effectively at the capital gains rate. The $200,000 cap was introduced in the 2019 budget. Freeland said in her fall fiscal statement that the new rules would apply to grants beginning July 1.
The $200,000 limit will be based on the fair market value of the underlying shares, the government said, and Canadian-controlled private corporations will not be subject to the new rules.
Bill C-30 also moves forward on two new types of annuities for registered plans proposed in 2019: advanced life deferred annuities (ALDAs) and variable payment life annuities (VPLAs).
The ALDA would allow a client to move some savings out of their registered retirement accounts to an annuity deferred until age 85. (Annuities purchased with registered funds generally begin at age 71.) A purchase cap was set at 25% of the source plan, to a maximum of $150,000.
The VPLA provides payments that vary based on the investment performance of the underlying annuities fund and on the mortality experience of annuitants.
Bill C-30 will also limit transfers of pensionable service into individual pension plans (IPPs), another 2019 holdover. The move will make it clear that an IPP can’t be implemented simply to avoid tax on the commuted value of benefits from another defined-benefit plan.
A change to prevent mutual funds and ETFs from using a method to allocate income and capital gains realized by redeeming unitholders is also in Bill C-30. The change to the “allocation to redeemers” methodology will apply to tax years beginning after March 18, 2019 (when the 2019 budget was released) for mutual funds. For ETFs, the legislation does not apply to tax years that begin before Dec. 16, 2021.
Bill C-30 will also implement changes to eligibility for the disability tax credit (DTC) announced in 2019 and reiterated in last year’s fall economic statement. The government will remove the time limitation on the period that a Registered Disability Savings Plan (RDSP) may remain open after a beneficiary becomes ineligible for the DTC.