On Tuesday afternoon, Finance Minister Bill Morneau tabled his first federal budget in the House of Commons. In many ways it was a big budget (promising a $29.4 billion deficit and a plan to invest $120 billion in infrastructure spending over the next 10 years). There were also a number of line items targeted at Canadian investors. Here are three key ways that Budget 2016 impacts them:
No. 1: Investors can expect to pay more tax
Budget 2016 aims to close loopholes that some investors use to reduce tax paid to the Canada Revenue Agency (CRA). For instance, it will examine the use of “debt-parking transactions,” used by investors or private corporations in an effort to “preserve the integrity of the foreign exchange computational rules.”
The Budget will also “prevent the asymmetrical recognition of gains and losses on derivatives for tax purposes,” and “prevent the deferral of capital gains tax by investors in mutual fund corporations structured as switch funds.”
Also introduced in Budget 2016 is a new rule that would “effectively treat the portion of any gain realized on the sale of a linked note that is attributable to the variable return on the note as accrued interest on the note.”
No. 2: The Labour-Sponsored tax credit will be reinstated
Budget 2016 restores the tax credit for share purchases of provincially registered Labour-Sponsored Venture Capital Corporations to 15% for 2016 and subsequent tax years. The aim is to aid small- and medium-sized businesses, by helping them gain access to venture capital and providing federal tax relief of about $815 million through 2020–21.
No. 3: The elimination of capital gains tax exemption on donations
Last year’s budget included a proposal to provide an income tax exemption on capital gains of donated private corporation shares or real estate, beginning in 2017. (To qualify, the cash proceeds from the disposition need to be donated to a registered charity or other qualified donee within 30 days.) Budget 2016 eliminates this tax exemption.