What does Budget 2017 have in store? Kim Moody, director, Canadian Tax Advisory at Moodys Gartner Tax Law in Calgary, makes six predictions on his blog — and several will disappoint people who dislike paying tax.
1. The capital gains inclusion rate may rise
Prior to Budget 2016, several experts (including Moody) had predicted the new Liberal government would increase the capital gains inclusion rate from 50% to 66.67%, or even as high as 75%. While that didn’t happen, it doesn’t mean the inclusion rate can’t change this year. “I really hope the government will not tinker with capital gains inclusion rates, but I’m afraid they might,” writes Moody.
2. Small business taxation could be reviewed
Moody points out that changes to taxation for Canadian-controlled private corporations (CCPCs) in the 2016 budget were quite controversial. “As the tax community woke up to the breadth, depth, and complexity of the changes, one thing became clear: the taxation of business income earned by CCPCs needs to be re-thought,” writes Moody. “In my view, the time is ripe to take a fresh look at the taxation of business income earned by CCPCs and it wouldn’t surprise me if the Department of Finance agrees.”
3. Finance will keep eliminating advantages for aggressive or artificial transactions
The last several budgets have gone after any transactions that produce artificial and produce inappropriate tax results, notes Moody. Examples include 10/8s, character conversion rules and linked notes. “My prediction is similar shutdowns will continue,” writes Moody. “The smart people at the Department [of Finance] appear to be constantly scouring the marketplace for inappropriate or artificial types of transactions.”
4. The Voluntary Disclosure Program may change
Moody says a government report has recommended that full relief from penalties should not be available under certain circumstances, including when someone avoids large dollar amounts of tax, when someone has failed to comply for many years, and “repeated use of the VDP by a taxpayer who meets clarified requirements for repeated use.”
“If you’re one of Canada’s taxpayers who can relate to the […] list of circumstances outlined by the Committee, you might want to take action now.” (Read the full list on Moody’s blog.)
5. Personal tax credits will continue to change
Moody points out that as the political winds change, more niche tax credits are likely to emerge.
6. Changes to U.S. taxation will impact cross-border planning
Given president-elect Trump’s proposals, “U.S. citizens residing in Canada, Canadian businesses wishing to expand to the U.S., American businesses wishing to expand into Canada, and many estate plans for Canadians who have U.S. interests and Americans who hold Canadian interests will need to be significantly rethought,” says Moody. But there’s a potential silver lining: “If some of the U.S. tax changes are as dramatic as proposed, Canada would be foolish to not react in some way.”