FEDERAL BUDGET HIGHLIGHTS

Transcription

1 MNP Federal Budget Summary

2 FEDERAL BUDGET HIGHLIGHTS On Tuesday, March 22, 2016, the Honourable Bill Morneau, Minister of Finance, delivered the new Government of Canada s first Federal Budget, Growing the Middle Class. According to Minister Morneau, our plan will recapture the hope and optimism for the future that existed in previous generations, and put it to work for the next. Real change is not just about today or tomorrow. It is about revitalizing the economy in the years and decades to come, so that it works for the middle class and helps those working hard to join it. Projecting a deficit of $29.4 billion in with a gradual decline to a deficit of $14.3 billion in , Minister Morneau also announced the repeal of the balanced budget legislation enacted under the previous government. A. Personal Tax Measures No new personal income tax rate changes have been announced in this year s Budget. The current federal marginal income tax rates are outlined below: 2016 Marginal Tax Rates Canadian Dividends 2016 Taxable Income Other Income Capital Gains Eligible Non-Eligible first $45, % 7.50% -0.03% 5.24% $45,283 to $90, % 10.25% 7.56% 11.67% $90,564 to $140, % 13.00% 15.15% 18.11% $140,389 to $200, % 14.50% 19.29% 21.62% over $200, % 16.50% 24.81% 26.30% CANADA CHILD BENEFIT As promised during the election, the 2016 Budget announces the elimination of the Canada Child Tax Benefit ( CCTB ) and Universal Child Care Benefit ( UCCB ) and replaces them with a single, non-taxable Canada Child Benefit ( CCB ). The CCB will provide a maximum benefit of $6,400 per child under the age of 6 and $5,400 per child ages 6 through 17. In addition to the CCB, the government will continue to provide up to $2,730 per child eligible for the disability tax credit. The CCB will come into effect July Payments under the CCTB and UCCB will conclude with the June 2016 payment. Payments for the July 2016 to June 2017 benefit year will be based on adjusted net family income reported for the 2015 taxation year. The CCB will be phased out based on adjusted family net income as follows:

3 Phase out rates % by income Number of Children $30,000 to $65,000 Over $65,000 1 child children children or more children The rules governing the CCB will generally be based on the existing CCTB rules. Specifically: The CCB will be paid monthly to eligible families. The CCB will not be taxable and will not reduce benefits paid under the Goods and Services Tax ( GST ) Credit. The CCB will not be included in income for purposes of federal incometested programs delivered outside of the income tax system, including the Guaranteed Income Supplement and the Canada Education Savings Grant, among others. To be eligible for the CCB, an individual must be a resident of Canada for tax purposes and must live with, and have the primary responsibility for the care and upbringing of the qualifying dependant(s). The handling of the CCB in a shared custody situation will remain the same as under the CCTB. To be consistent with the time limit on retroactive claims of other tax amounts under the Income Tax Act ( ITA ), the Budget proposes to allow taxpayers to request a retroactive payment of the CCB, CCTB or UCCB in respect of a month that is on or before the day that is 10 years after the beginning of that month. This will be effective for requests made after June FAMILY TAX CUT As previously announced, the Budget proposes to eliminate the Family Tax Cut, a non-refundable income-splitting tax credit currently available to couples with at least one child under the age of 18. NORTHERN RESIDENTS DEDUCTION Budget 2016 increases the amounts that can be deducted by individuals who live in prescribed areas in northern Canada for at least six consecutive months beginning or ending in the taxation year. Residents of the Northern Zone will have their deduction increased from $8.25 to $11 per person per day. As under current legislation, where no other member of the household claims the residency deduction (including where there is no other member of the household), the deduction can be doubled, resulting in a maximum deduction of $22 per person per day. Residents of the Intermediate Zone will be entitled to deduct half of the increased amounts.

4 The deduction available to be claimed to offset any taxable benefits received in respect of up to two employer-paid vacation trips per year and an unlimited number of employer-paid medical trips will remain the same. LABOUR-SPONSORED VENTURE CAPITAL CORPORATION TAX CREDIT A Labour-Sponsored Venture Capital Corporation ( LSVCC ) is a form of mutual fund corporation, sponsored by an eligible labour body, and mandated to provide venture capital to small and medium sized businesses. Prior to 2015, individuals acquiring LSVCC shares qualified for a 15% federal tax credit for investments up to $5,000 per year. This credit was reduced to 10% for 2015, 5% for 2016, and will be eliminated for 2017 and subsequent years. Budget 2016 maintains the planned phase-out of this credit. However, to support provinces that use LSVCC programs to facilitate access to venture capital for small and medium-sized businesses, Budget 2016 proposes to restore the LSVCC tax credit to 15% for share purchases of provincially registered LSVCCs prescribed under the ITA for 2016 and subsequent tax years. TEACHER AND EARLY CHILDHOOD EDUCATOR SCHOOL SUPPLY TAX CREDIT Teachers and early childhood educators often incur costs for supplies that are not reimbursed by their employer and are not otherwise deductible from their income. Budget 2016 introduces a 15% refundable tax credit for purchases of up to $1,000 per year by an eligible educator for eligible supplies such as arts supplies, stationery, books, and games. This will apply to purchases made on or after January 1, To qualify for the credit, the educator s employer will be required to certify that the supplies were purchased for the purpose of teaching or otherwise enhancing the learning environment, and the individual making the claim will be required to retain their receipts for verification purposes. ONTARIO ELECTRICITY SUPPORT PROGRAM The Ontario Electricity Support Program ( OESP ) is a credit provided by the Government of Ontario to low income households. This type of assistance is generally required to be included in taxable income, with an offsetting deduction; however, the amounts received can affect income-tested federal or provincial/territorial benefits. Budget 2016 proposes to exempt amounts received under the OESP from income. MINERAL EXPLORATION TAX CREDIT FOR FLOW-THROUGH SHARE INVESTORS Flow-through shares allow resource companies to renounce, or flow tax expenses associated with their qualifying Canadian exploration activities to investors. The mineral exploration tax credit provides an additional credit equal to 15% of specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors. Budget 2016 proposes to extend the eligibility for this tax credit for one year to include flow-through share

5 agreements entered into on or before March 31, 2017, as long as the funds raised are spent on eligible activities by the end of EDUCATION AND TEXTBOOK TAX CREDITS The education and textbook tax credits are non-refundable credits available to students enrolled full time in a qualifying educational program or part time in a specified educational program. The credits are based on an allowable amount for each month of enrolment. Budget 2016 proposes to eliminate the education and textbook tax credits effective January 1, Unused amounts from years prior to 2017 will remain available to be claimed in 2017 and subsequent years. The tuition tax credit, which is a non-refundable tax credit on eligible fees for tuition and eligible examination fees paid to certain educational institutions, is not affected by the Budget. CHILDREN S FITNESS AND ARTS TAX CREDITS The Children s fitness tax credit provides a 15% refundable credit on up to $1,000 of eligible fitness expenses for children under 16 years of age. The Children s arts tax credit provides a 15% non-refundable credit on up to $500 of eligible fees for programs of artistic, cultural, recreational and developmental activity for children under 16 years of age. Both amounts are increased by $500 and extended to children under 18 years of age where the child qualifies for the disability tax credit. Budget 2016 proposes to phase out these credits by reducing the maximum eligible expense amounts by 50% in 2016 and eliminating them for 2017 and subsequent years. The disability supplement will remain at $500 for Children s Fitness Tax Credit Children s Arts Tax Credit Basic With DTC Basic With DTC 2016 $500 $1,000 $250 $ TOP MARGINAL INCOME TAX RATE CONSEQUENTIAL AMENDMENTS In December 2015, the Government announced a new federal tax bracket for income over $200,000, to be taxed at a marginal rate of 33%. A number of rules in the ITA either use the top personal tax rate or use rates and formulas that reflect. Several consequential amendments to the ITA were introduced at that time to maintain the neutrality, fairness and integrity of the income tax system, and it was stated that further review would be required to determine whether other rules required adjustment. Budget 2016 announces the following additional consequential amendments:

6 Provide a 33% donation tax credit on amounts in excess of $200 to trusts that are subject to the 33% tax rate on all of their income; Apply the 33% rate to excess employee profit sharing plan contributions; Increase from 28% to 33% the tax rate on personal services business ( PSB ) income earned by corporations; Amend the definition of relevant tax factor in the foreign affiliate rules to reduce the factor from the current 2.2 to 1.9; Amend the capital gains refund mechanism for mutual fund trusts to reflect the new 33% rate in the calculation of refundable taxes; Increase the Part XII.2 tax rate on the distributed income of certain trusts from 36% to 40%; and Amend the recovery tax rule for qualified disability tax trusts to refer to the 33% rate. These measures will apply for the 2016 and later taxation years. In the case of PSB income earned by corporations in tax years that straddle 2015 and 2016, the rate increase will be prorated. The 33% donation tax credit mechanism for individuals proposed in 2015 will be extended to include donations made by a graduated rate estate during a taxation year that straddles 2015 and OTHER PERSONAL TAX MEASURES Taxation of Switch Fund Shares Some mutual funds are structured as corporations instead of trusts, and investors purchase shares in different switch-funds to manage their exposure to different types of assets. Investors are able to exchange shares between these funds on a tax deferred basis, and this deferral is not available to investors in mutual fund trusts. In order to eliminate the disparity between the two types of mutual funds, Budget 2016 proposes to treat the exchange of shares in a switch-fund as a disposition at fair market value. These measures will not apply where the shares differ only in respect of management fee expenses to be borne by the investor, and otherwise derive their value from the same portfolio (e.g. the switch is between different series of shares within the same class). This measure will apply to dispositions that occur after September 2016 Sales of Linked Notes A linked note is a debt obligation where the return is linked to the performance of one or more reference assets or indexes over the term of the obligation. If held to maturity, the return will be treated as interest income. Because of the uncertainty of the eventual rate of return, these notes arguably do not require annual interest income accruals, with the result that the interest is fully taxed in the year that the note matures. If the notes are disposed of before maturity, the proceeds have been argued to be entirely related to the capital, and this results in the conversion of interest income to capital gains.

7 Budget 2016 proposes to amend the ITA so the return on a linked note will be taxed in the same manner whether it is earned at or prior to maturity. This measure will apply to linked notes sold after September Improving the Quality of Life for Seniors Budget 2016 will launch consultations with Canadians to allow individuals to share their views on enhancing the Canada Pension Plan ( CPP ). The goal is to provide the federal and provincial governments with the information necessary to make a collective decision on how to improve the CPP before the end of The proposed changes to increase the age of eligibility for the Old Age Security and Guaranteed Income Supplement ( GIS ) will be cancelled, and will remain at 65 and 60, respectively. The GIS will be increased by up to $947 annually effective July The phase-out of the GIS will continue to begin at incomes of $4,600 and will be fully phased out at $8,400. Benefits will be adjusted quarterly to reflect increases in the cost of living. Senior couples who are required to live apart for reasons beyond their control are often disadvantaged in relation to those who live together. Budget 2016 proposes to amend the GIS to allow for higher benefits to be paid to such couples. B. Corporate Tax Measures Budget 2016 cancels the previously enacted small business rate reductions for the years 2017 to As such the small business rate will remain at 10.5% for taxation years ending after 2016 with the dividend gross up and tax credit rates for non-eligible dividends set at 17% and 21/29 respectively. The combined Federal and Provincial small business tax rates for the 2016 and subsequent years are as follows: Small Business Corporations General Corporations Rate Threshold Non M&P M&P Federal 10.5% $500, % 15.0% British Columbia 13.0% $500, % 26.0% Alberta 13.5% $500, % 27.0% Saskatchewan 12.5% $500, % 25.0% Manitoba 10.5% $450, % 27.0% Ontario 15.0% $500, % 25.0% Quebec 18.5% $500, % 26.9% SMALL BUSINESS DEDUCTION The Act currently contains specific rules to prevent multiplication of the small business deduction.

8 Partnerships The specified partnership income rules require that all partners in the partnership share the small business deduction. Certain partnerships have implemented structures whereby the individual partner is a member of the partnership and is also the shareholder of a Canadian Controlled Private Corporation ( CCPC ) that provides services to the partnership. The CCPC is then able to claim a small business deduction in addition to other CCPCs whose shareholders are individual members of the partnership. Budget 2016 proposes rules to treat the CCPC as a designated member of the partnership thereby ensuring that specified partnership income rules apply to the CCPC. A designated member is defined as a CCPC that provides services or property to the partnership at any time in the year where: (i) It is not a member of the partnership in the taxation year; and (ii) It does not deal at arm s length with a member of the partnership However, there is an exception if the CCPC does not deal at arm s length with the member of the partnership but all or substantially all of the CCPC s income is from providing services or property to arm s length partnerships or persons. As the CCPC is not a member of the partnership, it would not otherwise have a specified partnership income limit; however the rules propose to permit the transfer of their portion of the small business deduction of the non-arm s length individual partner to the CCPC. Corporations A corporation could also be used in place of the partnership described above. Budget 2016 also proposes similar changes to preclude the application of the small business deduction to income earned by a CCPC from providing services or property to a private corporation where at any time in the year, the CCPC, one of its shareholders, or a person who does not deal at arm s length with the CCPC (or one of its shareholders) holds a direct or indirect interest in the private corporation. Nonetheless, where the CCPC earns all or substantially all of its income from arm s length persons, the small business deduction will be available. Limited relief is also provided whereby the private corporation may assign any unused small business limit to the CCPC (subject to other restrictions). These proposals will apply to taxation years that begin on or after budget day. ASSOCIATED CORPORATION RULES In certain situations, two corporations may be associated with each other through a third corporation. In this circumstance the small business deduction may be eliminated where the taxable capital of the three corporations exceeds $15 million. An election under the Act permits the third corporation to not be

9 associated with the two other corporations. As a result, each of the two corporations are able to claim their own SBD (subject to their taxable respective capital limits). However, where the income earned by the two corporations is derived from the active business income of another associated corporation ( associated income ), the income is taxed as active business income and not investment income. The Budget proposes to tax the associated income at the general rate where the election not to be associated has been made or the third corporation is not a CCPC. In addition, the third corporation will be associated with each of the other corporations for purposes of applying the $15 million taxable capital limit. These proposals will apply to taxation years that begin on or after budget day. CONSULTATION ON ACTIVE VERSUS INVESTMENT BUSINESS The prior budget had announced that it would examine whether certain income from property should be considered active business income. The government has concluded its consultation and is not proposing any modification to the rules at this time. ELIGIBLE CAPITAL PROPERTY ( ECP ) Budget 2016 proposes legislation to repeal the existing ECP regime and to implement a Capital Cost Allowance (CCA) class, as well as transitional rules for the taxpayer s existing Cumulative Eligible Capital Pools. A new CCA class with 100% inclusion rate (as opposed to the previous 75%) is introduced with an annual depreciation rate of 5%. The rules relating to recapture, capital gains and half-year will apply to the new class. As a result of the changes, the deferral opportunity relating to disposition of goodwill, by a CCPC as an example, is no longer available as the refundable tax regime will now apply to such dispositions. Transitional Rules CEC pool balances will be transferred to a new CCA class at their existing amount as of January 1, 2017 and will be subject to a 7% depreciation rate for the first ten years in respect of expenditures incurred before January 1, In situations where property is disposed of subsequent to 2016 but relates to expenditures incurred prior to 2017, the proceeds may be adjusted to account for the 75% inclusion rate for the original expenditures. Budget 2016 also proposes to allow the deduction of the greater of $500 and the amount otherwise determined for expenditures incurred prior to This will be applicable for taxation years up to and including In addition, incorporation expenditures up to maximum of $3,000 can be deducted immediately with any excess added to the CCA class.

10 LIFE INSURANCE POLICIES A portion of the life insurance proceeds received by a private corporation or partnership may be distributed to the shareholder or partner as a tax-free capital dividend or as a reduction of the partner s adjusted cost base, respectively. The amount included in the capital dividend account (or added to the partner s ACB) is generally the policy benefit in excess of the policyholder s adjusted cost base. In certain situations, the amount added may be higher than otherwise intended under the Act. The Budget 2016 proposals include measures to ensure that the insurance benefit limit applies irrespective of whether the corporation or partnership is a policyholder of the policy. In situations where the corporation or partnership is not the policyholder but is able to obtain a policy benefit, additional reporting requirements have been introduced. In situations where a person disposes of a policy to a non-arm s length person, the surrender value is deemed to be the policy holder s proceeds of disposition and the cost to the person acquiring the property. However, the transferor is able to take back consideration (e.g. a promissory note) equal to the policy s fair market value. Once the policy benefit has been received by a private corporation, the amount can be extracted tax free from the corporation. Budget 2016 proposes to include, as proceeds of disposition to the transferor of the policy, the FMV of any consideration. The same amount will be included in the acquirer s cost. Moreover, where the disposition arises as a contribution to capital of a corporation or addition to partnership capital, the amount added to the paid-up-capital or ACB will be limited to the proceeds of disposition. These measures will apply to policy benefits received and dispositions on or after March 22, C. International Tax Measures TRANSFER PRICING DOCUMENTATION COUNTRY BY COUNTRY REPORTING As part of the OECD s Base Erosion and Profit Shifting (BEPS) initiative, the government is introducing country-by-country (CBC) reporting for large multinational enterprises (MNEs) with consolidated revenues of 750 Million or more. CBC reporting will be required for taxation years that begin after 2015, and will be due one year after the end of the fiscal year to which the report relates. The CRA will automatically exchange CBC reporting with other jurisdictions in which the MNE operates, provided that the other jurisdiction has implemented CBC reporting, Canada and the other jurisdiction have a legal framework in place for the automatic exchange of information, and they have entered into a competent authority agreement to ensure that safeguards are in place to protect the confidentiality of information.

11 CBC reporting will be required of an MNE with an ultimate parent entity that is resident in Canada. In certain cases, a Canadian subsidiary of a foreign-based MNE will be required to report, if the CBC reporting cannot be obtained from the parent entity s jurisdiction through the automatic exchange of information. TRANSFER PRICING GUIDANCE The budget confirms that the CRA is generally revising its audit and assessing practice to reflect revisions to the OECD s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations arising from the BEPS project. In two areas, however, the Transfer Pricing Guidelines are subject to continuing follow-up work, and the CRA will decide on whether to revise its administrative practices until after this work is complete. These two areas pertain to a proposed simplified approach to low value-adding services, and with respect to minimally functional entities (referred to as cash boxes ). TREATY ABUSE The BEPS project identifies treaty abuse and treaty shopping as one of the most important areas of concern. The BEPS minimum standard requires countries to include in their tax treaties an express statement that their intention is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through evasion or avoidance. The government confirmed its commitment to address treaty abuse through either a limitation-on-benefits rule or a principal purpose test, depending on the particular circumstances and discussions with Canada s tax treaty partners. The government confirmed that it is actively participating in international work to develop a multilateral instrument that could streamline the implementation of treaty-related BEPS recommendations. EXCHANGE OF TAX RULINGS The CRA will begin implementing the BEPS recommendation to automatically exchange tax rulings with other jurisdictions which have committed to minimum standards for the use and protection of taxpayer information. The types of rulings to which the spontaneous exchange framework will apply covers six categories: (i) preferential tax regimes (ii) cross-border unilateral advance pricing arrangements (iii) rulings giving a downward adjustment to profits (iv) permanent establishment rulings (v) conduit rulings, and (vi) any other type of ruling agreed to in the future.

12 CROSS BORDER SURPLUS STRIPPING Proposed amendments to the cross-border surplus stripping rules in section will narrow the exception currently contained in subsection 212.1(4). The cross-border surplus stripping rules are designed to prevent non-resident shareholders from extracting value in excess of the paid-up capital (PUC) of a Canadian corporation, except by way of a dividend subject to withholding tax. Where the rules apply, the limit the value of non-share consideration that a non-resident corporation or partnership can receive from a Canadian corporation ( purchaser ), in exchange for the shares of a second Canadian corporation ( subject ), to an amount equal to the PUC of the subject corporation s shares. The excess non-share consideration is treated as a dividend paid to the non-resident, subject to withholding tax. The rules also limit the amount of the PUC increase with respect to the purchaser corporation s shares that are issued in exchange for the subject shares. The CRA has reassessed several taxpayers with respect to transactions that were designed to avoid the application of the surplus stripping rules in a manner the CRA considered abusive. Although it intends to continue to pursue such transactions that occurred prior to Budget Day, the government has introduced amendments to the surplus stripping rules that are intended to provide certainty and clarification regarding the application of the rules to certain types of avoidance transactions. EXTENSION OF THE BACK-TO-BACK RULES Budget 2016 proposes to extend the principles underlying the existing back-toback loan rules in a number of new ways. (i) Extending the existing back-to-back loan rules for withholding tax purposes to arrangements involving rents and royalties; (ii) Adding character substitution rules to the back-to-back rules; (iii) Extending the back-to-back rules to apply to the existing shareholder loan rules domestically; and (iv) Clarifying the application of the back-to-back rules to multiple intermediary structures. The measures significantly broaden the application of back-to-back concepts, notably to the payment of rents and royalties by a Canadian resident person to an intermediary located in a tax treaty country. Where a back-to-back arrangement is found, whereby the intermediary in turn makes a payment to a third person that is also a non-resident, the amount of withholding tax applicable will be the greater of the amount that applies on the actual payment to the intermediary, and the amount that would be payable had the Canadian person paid the third non-resident person directly. In addition, the back-to-back rules are extended to look through intermediary payments where the character of a payment may change at different legs of

13 the arrangement. For example, where interest is paid by a Canadian resident to a non-resident intermediary, and the intermediary pays royalties to a third non-resident person; the Canadian will be considered to have made a payment of interest to the third non-resident person. The back-to-back rules that currently apply under the thin-capitalization rules will be extended to apply to shareholder loan situations. Finally, the rules are to be clarified regarding the manner in which they apply to situations involving multiple intermediaries. Detailed tax amendments have not been released in the Budget Documents. These measures apply to payments made after D. Other Measures ABORIGINAL TAX POLICY Budget 2016 expresses the government s willingness to continue to effect to direct sales tax and personal income tax arrangements with interested Aboriginal governments, and to support similar arrangements between those governments and provincial or territorial authorities. CHARITIES AND NONPROFIT ORGANIZATIONS Budget 2016 announced the Government s intention not to proceed with the capital gains exemption previously announced in the 2015 Budget relating to dispositions of private corporation shares or real estate where cash proceeds from the disposition are donated to a registered charity within 30 days. PREVIOUSLY ANNOUNCED MEASURES Budget 2016 confirms the government s intent to proceed with a number of previously announced tax, as modified, to take into account consultations and deliberations since their release. Legislative proposals on the income tax rules for certain trusts and their beneficiaries Conversion of capital gains into tax deductible inter-corporate dividends (Section 55) The offshore reinsurance of Canadian risks; Alternative arguments in support of an assessment Repeated failure to report income penalty The acquisition or holding of limited partnership interests by registered charities The GST / HST joint venture election

14 E. Sales and Excise Tax Measures HEALTH MEASURES After Budget Day 2016, the Federal Government will add insulin pens, insulin needles and intermittent urinary catheters to the list of zero-rated medical devices. The intermittent urinary catheters will only be zero-rated to the consumer when it is supplied under the written order of a medical doctor, registered nurse, occupational therapist or physiotherapist. Purely cosmetic procedures will continue to be subject to the GST/HST. The 2016 Federal Budget provides clarification that these supplies will be taxable when provided by all suppliers including a registered charity. Cosmetic procedures will continue to be exempt from the GST/HST if it is required for medical or reconstructive purposes. EXPORTED CALL CENTRE SERVICES Budget 2016 will modify the zero-rating rules for certain exported supplies of call centre services made after Budget Day. The changes will allow the supply of a service rendering technical or customer support to individuals by means of telecommunications (e.g., by telephone, or web chat) to be zero-rated for GST/HST purposes provided certain conditions are met (e.g. at the time the supply is made, the technical or customer support is to be rendered primarily to individuals who are outside Canada at the time the support is rendered and if the service supplied to a non-resident person is not registered for GST/HST purposes). REPORTING OF GRANDPARENTED HOUSING SALES Under transitional rules applicable when a province either joined the HST system (or increased its HST rates) there have been grandparenting provisions regarding newly constructed or substantially renovated homes. These provisions meant that the sale was not subject to the HST or the increased rate of HST in that particular jurisdiction. Under the old transitional rules there were a number of reporting requirements for builders with respect to the amounts of tax charged and rebates allowed. Budget 2016 simplifies these reporting requirements for builders. These simplifications include: limiting the reporting requirement to those grandparented housing sales for which the consideration is equal to or greater than $450,000; and Providing builders with an opportunity to correct past misreporting and avoid potential penalties by allowing them to elect to report all past

15 grandparented housing sales for which the consideration was equal to or greater than $450,000. These new reporting measures will come into effect for any reporting period of a person that ends after Budget Day. Builders may also make an election (filed between May 1, 2016 and December 31, 2016) to have these measures take effect on any sales of grandparented housing made on or after July 31, DEFINITION OF CAPITAL PROPERTY Due to the repeal of the ECP regime for income tax purposes and creation of a new capital cost allowance Class 14.1, Budget 2016 proposes to amend the definition of capital property for purposes of the GST/HST to exclude property described in new Class 14.1 These changes are effective January 1, CLOSELY RELATED TEST For GST/HST, special relief through elections (s.150 or s.156) allows members of the same group of closely-related corporations or partnerships to not incur or collect GST/HST on certain intercompany transactions. Among other requirements, each member of this group must be considered closely-related to every other member of the same group. The effect would be to reflect that they operate like a single entity. Concern appears to be that under certain complex arrangements with share capital structures there may be the appearance of being closely-related but the member(s) lack 90% or more control over the other member. Budget 2016 proposes to require that, in addition to the existing conditions, a corporation or partnership must also hold and control 90% or more of the votes of every corporate matter of the subsidiary corporation. There will be some exceptions. The change will generally apply one year after March 22, However, the measure will apply to all elections under s.150 and 156 that are filed after March 22, 2016 and that are to be effective March 23, 2016 onward. GST/HST ON DONATIONS TO CHARITY Generally the GST/HST does not apply to donations made to a charity. However the GST/HST does apply to property or services received by the donor even when the value of the donation exceeds the value of the property or services received. Budget 2016 intends to align the GST/HST with the split receipting rules under the Income Tax Act. This means that to the extent that a charity supplies property or services in exchange for a donation, only the value of the property or services supplied will be subject to GST/HST. This change will apply to supplies made after Budget Day.

16 For charities that did not collect the GST/HST on the full value of donations made in exchange for an inducement for the period December 21, 2002 to Budget Day there is transitional relief on the tax amounts. DE MINIMIS FINANCIAL INSTITUTIONS Financial institutions are businesses that mainly provide financial services and would include banks, insurance companies, investment dealers and investment plans. De Minimis financial institutions are businesses that provide a significant amount of financial services, such that they may be in competition with traditional financial institutions. The criteria to be a De Minimis financial institution is a person who s income for the preceding taxation year from interest, fees or other charges with respect to the making of an advance, the lending of money, the granting of credit, or credit card operations, exceeds $1 million. Budget 2016 proposes that interest earned in respect of demand deposits, as well as term deposits and guaranteed investment certificates with an original date to maturity not exceeding 364 days, not be included in determining whether the person exceeds the $1 million threshold. These changes will apply to taxation years of a person beginning on or after Budget Day and to the fiscal year of a person that begins before Budget Day and ends on or after that day for the purposes of determining if the person is required to file the Financial Institution GST/HST Annual Information Return. APPLICATION OF GST/HST TO CROSS BORDER REINSURANCE Budget 2016 proposes to clarify that two specific components of imported reinsurance services, ceding commissions and the margin for risk transfer, do not form part of the tax base that is subject to the self-assessment provisions contained in the GST/HST imported supply rules for financial institutions and to set out specific conditions under which the special rules for financial institutions do not impose GST/HST on reinsurance premiums charged by a reinsurer to a primary insurer. This measure will apply as of the introduction of the special GST/HST imported supply rules for financial institutions (i.e., in respect of any specified year of a financial institution that ends after November 16, 2005). In addition, this measure will allow a financial institution to request a reassessment by the Minister of National Revenue of the amount of tax owing by the financial institution under the special GST/HST imported supply rules for a past specified year of the financial institution, as well as any related penalties or interest, but solely for the purpose of taking into account the effect of this measure. A financial institution will have until the day that is one year after the day that these amendments receive Royal Assent to request such a reassessment.

17 ABOUT MNP MNP is a leading national accounting, tax and business consulting firm in Canada. We proudly serve and respond to the needs of our clients in the public, private and not-for-profit sectors. Through partner-led engagements, we provide a collaborative, cost-effective approach to doing business and personalized strategies to help organizations succeed across the country and around the world. Regional Tax Contacts Name Region Phone Number James Kungel Vancouver Island Kevin Wong Vancouver Am Lidder Lower Mainland Christopher Tilbury Fraser Valley Brian Posthumus Okanagan Randy Bella Calgary Graham Heron Central Alberta Mark Bernard Edmonton Kim Drever Peace Deidre Jensen Southern Alberta Mike Unick Lethbridge Cindy Heinrichs Swift Current Dave Boyko North Sask Regan Exner South Sask Derek Innis Winnipeg Michael Poole Southern Manitoba Steve Blazino Northwest Ontario David Webb Southwest Ontario Don Carson GTA Rosario Suppa GTA-West Gavin Miranda Ottawa Sean Sprackett Montreal Service Line Leaders Name Region Phone Number John Durland International Tax Heather Weber Indirect Tax Jay McLean SR&ED Tax Senior Vice President, Tax Name Region Phone Number Loren Kroeker National Tax

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