2017 Federal Budget

On March 22, Finance Minister Bill Morneau unveiled the Liberal government’s second federal budget entitled “Building a Strong Middle Class”. Here are some of the highlights.

1. Taxation: Canadian investors breathed a sigh of relief in that the budget did not propose any increases to the capital gains inclusion rate (or income tax rates in genera), nor did it introduce any significant small business tax changes affecting private corporations and their shareholders.
2. Deficit: The budget will show a $23.0 billion deficit in 2016-17 and $28.5 billion in 2017-18. Over the remainder of the forecast horizon, the deficit is expected to decline gradually form $27.4 billion in 2018-19 to $18.8 billion in 2021-22. The federal debt-to –GDP ratio is projected to decline gradually after 2018-19 to the end of the fiscal horizon, reaching 30.9% in 2012-22.
3. Caregiver credits: Budget 2017 proposes to simplify the existing system of tax measures for caregivers by replacing the infirm dependent, caregiver and family caregiver tax credits with a new Canada Caregiver Credit.
4. Tuition tax credit: The budget proposes to extend eligibility for the tuition tax credit to fees for an individual’s tuition paid to a university, college or other post-secondary institution in Canada for occupational skills courses that are not at the post-secondary level.
5. Anti-avoidance rules for registered plans: A number of anti-avoidance rules exist for TFSAs, RRSPs and RRIFs to help ensure that the plans don’t provide excessive tax advantages unrelated to the respective basic objectives. Budget 2017 would extend these rules to RESPs and RDSPs.

The most impactful measure amongst the tax changes proposed was the elimination of a tax credit for public transit passes, a move expected to raise $1 billion over five years.

The budget doesn’t directly address the Vancouver or Toronto housing markets but is setting aside $40 million over five years for Statistics Canada to develop a national housing database that will track and collect data on residential transactions and track foreign buyer activities. Canada’s high levels of household debt were listed as an ongoing risk to the economy.

There was a special focus on improving the lives of women in the workforce which will allow women to claim maternity benefits for up to 12 weeks before their due date and extend parental benefits for up to 18 months at a lower rate of 33% of income as opposed to 12 months at 50%.

The bottom line is that this is basically a “wait and see” budget as the government confronts uncertainty over the impact of a Trump administration, although the U.S. president was obviously not mentioned by name.

Sources: Government of Canada, CIBC Institutional Equity Research, Canaccord Genutiy Wealth Management, Manulife, CI Investments, BMO Wealth Management, RBC Wealth Management, the Globe and Mail, Raymond James Ltd.