Federal Budget Commentary 2024

Canada’s 2024 Federal Budget (Budget 2024), delivered by Deputy Prime Minister and Finance Minister Chrystia Freeland on April 16, 2024, addresses critical economic challenges faced by Canadians and businesses.

Audit & enforcement measures

The government announced a variety of targeted anti-avoidance measures to enhance the CRA’s compliance efforts and enforcement actions.

Enhancing CRA’s information gathering capabilities

To address concerns of the CRA’s effectiveness in compliance and enforcement actions, Budget 2024 proposes to amend several information gathering provisions in the ITA, the Excise Tax Act (ETA), and other legislation administered by the CRA. These amendments would come into force on royal assent of the enacting legislation.

Notice of non-compliance

Budget 2024 proposes to allow the CRA to issue a new type of notice called a “notice of non-compliance” to a person that has not complied with a requirement, or a notice to provide assistance or information, issued by the CRA. Where a notice of non-compliance has been issued, a penalty would be applied equal to $50 for each day that the notice is outstanding to a maximum of $25,000. The government also proposes to extend the period to reassess a taxation year where a notice of non-compliance is outstanding for a taxpayer or a person that does not deal at arm’s length with the taxpayer.

If a taxpayer disagrees with the issuance of a notice of non-compliance, it would be reviewable by the CRA and could be vacated if the CRA determines that it was unreasonable to issue the notice or that the person had reasonably complied with the initial requirement. There will also be a further statutory right of review by the Federal Court.

Questioning under oath

Budget 2024 proposes to amend the ITA to allow the CRA to include in a requirement or notice that any required information in written, oral or document form, be provided under oath or affirmation.

Penalty upon compliance orders

To encourage compliance with CRA information requests, Budget 2024 proposes to impose a penalty when the CRA obtains a compliance order from the court against a taxpayer. The penalty would be equal to 10% of the aggregate tax payable by the taxpayer in respect of the taxation year(s) to which the compliance order relates. The penalty would only be applied if the tax owing in respect of one of the taxation years to which the compliance order relates exceeds $50,000.

Budget 2024 further proposes an amendment to allow the CRA to seek a compliance order when a person has failed to comply with a requirement to provide foreign-based information or documents.

Stopping the reassessment limitation clock

Budget 2024 proposes to extend the CRA’s period to reassess a taxpayer when the taxpayer seeks judicial review of any requirement or notice issued to the taxpayer related to the audit and enforcement process, or during any period that a notice of non-compliance is outstanding. The period to reassess would end when the judicial review is disposed of. Similar rules would apply where a requirement or notice has been issued to a person that does not deal at arm’s length with the taxpayer. These rules are similar to those proposed under the notice of non-compliance.

Stopping the avoidance of tax debts

The ITA includes an anti-avoidance rule which prevents taxpayers from avoiding paying their tax liabilities by transferring their assets to non-arm’s length persons. The effect of this tax debt avoidance rule is to make the transferee jointly and severally, or solidarily liable with the transferor for the transferor’s tax debts less any consideration given by the transferee for the property. Some taxpayers have attempted to circumvent this rule by transferring assets to a third-party first.

Budget 2024 proposes to expand this rule and have it apply where:

  • there has been a transfer of property from a tax debtor to another person;
  • as part of the same transaction or series of transactions, there has been a separate transfer of property from a person other than the tax debtor to a transferee that does not deal at arm’s length with the tax debtor; and,
  • one of the purposes of the transaction or series is to avoid joint and several, or solidary liability.

Budget 2024 proposes to penalize third-party advisors who assist with these schemes by imposing a penalty equal to the lesser of:

  • 50% of the tax that is attempted to be avoided; and,
  • $100,000 plus any amount the person, or a related person, is entitled to receive or obtain in respect of the planning activity.

Budget 2024 also proposes that taxpayers who participate in tax debt avoidance planning be jointly and severally, or solidarily liable for the full amount of the avoided tax debt, including any portion that has effectively been retained by the planner.

These rules are proposed to apply to transactions or series of transactions that occur on or after April 16, 2024. The federal government also intends to make similar amendments to other federal provisions, such as those under the ETA, the Select Luxury Items Tax Act, and the Underused Housing Tax Act.

Clarifying penalties related to the MDR

Under the ITA, a person who fails to file or make a return, or comply with certain specified rules, is guilty of an offence and liable for penalties up to $25,000 and imprisonment up to a year. Budget 2024 announces the government’s intention to exempt the failure to report a reportable or notifiable transaction from this penalty. This amendment would be deemed to have come into force on June 22, 2023.

Business tax

Budget 2024 proposes to increase the capital gains inclusion rate for corporations from 50% to 66.67% while also providing accelerated write-offs for eligible purpose-built rental housing and productivity-enhancing assets.

Increase to the capital gain inclusion rate for corporations

For tax years that begin after June 25, 2024, Budget 2024 proposes to increase the capital gains inclusion rate for corporations from 50% to 66.67%. Any net capital losses carried forward are adjusted to their value to reflect the inclusion rate of the capital gains being offset. As a result, any capital losses realized before the rate change would fully offset an equivalent capital gain after the rate change.

Introduction of new accelerated capital cost allowance rates

The capital cost allowance (CCA) system provides a deduction for businesses each year in respect of the capital cost of its depreciable property. Depending on the nature of the depreciable property, different CCA depreciation rates are used.

Eligible purpose-built rental housing

Budget 2024 proposes an accelerated CCA rate of 10% for new eligible purpose-built rental projects that begin construction on or after April 16, 2024, and before Jan 1, 2031, provided the building is made available for use before Jan. 1, 2036. New purpose-built rental housing includes residual complexes with at least four private apartment units or 10 private rooms/suites. Additionally, at least 90% of the residential units must be held for long-term rental.

Projects that convert existing non-residential real estate into a residential complex or costs incurred to create a new addition to an existing structure are eligible for the accelerated CCA rate. Renovations of existing residential complexes would not be eligible.

Productivity-enhancing assets

Budget 2024 proposes a 100% first-year deduction for property that is acquired on or after April 16, 2024 and becomes available for use before Jan 1, 2027 in respect of patents, data network infrastructure equipment, and general-purpose electronic data-processing equipment. The immediate expensing will only be available in the year the property becomes available for use.

Canada carbon rebate for small businesses

Currently, the federal government implements a fuel charge in various provinces and returns a portion of these proceeds to the public via the Canada Carbon Rebate and a refundable tax credit for farmers. Budget 2024 proposes to return the remainder of fuel charge proceeds to small and medium-sized business through the new Carbon Rebate for Small Businesses.

The Carbon Rebate for Small Businesses will be available to certain CCPCs for the 2019-20 to 2023-24 fuel charge years provided their tax return for the 2023 taxation year is filed by July 15, 2024. For the 2024-25 fuel charge year onwards, similar filing criteria would need to be met.

Mutual fund corporation changes

Mutual fund corporations are afforded various tax benefits, including not being subject to mark-to-market taxation and being able to elect capital gains treatment on the disposition of Canadian securities.

Budget 2024 proposes amendments to preclude a corporation from qualifying as a mutual fund corporation where it is controlled by or for the benefit of a corporate group. Exceptions would be provided to ensure that the measure does not adversely affect mutual fund corporations that are widely held pooled investment vehicles.

This measure would apply to taxation years that begin after 2024.

Removing an exception under synthetic equity arrangements

The ITA allows a corporation to deduct the amount of any dividends received on a share of a corporation resident in Canada, subject to certain limitations. Where a taxpayer enters into a synthetic equity arrangement, the taxpayer is generally obligated to compensate the other person for the amount of any dividends paid on the share. This compensation payment may result in a tax deduction for the taxpayer in addition to the dividend received deduction in certain situations involving a tax-indifferent investor.

Budget 2024 proposes to remove the tax-indifferent investor exception, thereby disallowing the deduction under those certain situations. This measure would apply to dividends received on or after Jan. 1, 2025.

Restricting the manipulation of bankruptcy status

The ITA exempts bankrupt taxpayers from the general debt forgiveness rules. Instead, a separate loss restriction rule applies to extinguish the losses of bankrupt corporations that have received an absolute order of discharge.

To prevent the manipulation of the bankrupt status of an insolvent corporation to benefit from the exception of the debt forgiveness rules while simultaneously avoiding the loss restriction rule, Budget 2024 proposes to repeal the loss restriction rule and the exception to the debt forgiveness rules and applicable to bankrupt corporations. The bankruptcy exception to the debt forgiveness rules would remain in place for individuals.

These proposals would apply to bankruptcy proceedings that are commenced on or after April 16, 2024.

Taxing vacant land

Budget 2024 announces that a new tax on residentially zoned vacant land is being considered. Consultations will be launched later this year.

Credits and incentives

Budget 2024 introduces, elaborates, and expands on the clean economy tax credits and reinforces the government’s commitment to modernizing the scientific research & experimental development program.

Clean electricity investment tax credit

Budget 2024 provides details on the previously announced clean electricity investment tax credit (ITC), offering a 15% refundable credit on the capital cost of eligible property. The eligible property must be acquired and become available for use on or after April 16, 2024 and before 2035. The property cannot have not been used for any purpose before its acquisition or be part of a project that began construction before March 28, 2023.

The ITC will be available to Canadian corporations, including those exempt from tax, as well as provincial and territorial Crown corporations (provided they commit to a net-zero electricity grid by 2035). Additionally, corporations can claim their share of the credit from a partnership. The list of eligible property includes equipment used to generate electricity from “green” sources (e.g., solar, geothermal) as well as to store and to transmit electricity between provinces and territories.

For expenditures that qualify for multiple clean economy ITCs, such as the clean technology ITC or the carbon capture, utilization, and storage ITC, eligible corporations will be able to claim one of the credits. However, more than one credit may be claimed in respect of the same project, albeit on separate expenditures. The credit rate will be reduced by 10% if the claimant does not comply with certain labour requirements (i.e., a prevailing wage and apprenticeship requirement) contained in Bill C-59.

Amendments to the Clean Technology Manufacturing Investment Tax credit

The clean technology manufacturing ITC (CTMITC) is a refundable ITC that was proposed in Budget 2023. Budget 2024 proposes amendments to better allow projects engaged in the production of multiple metals to qualify for the credit.

Some of these changes include:

  • clarifying that the value of qualifying materials that will be used to assess the extent to which property is used or is expected to be used for qualifying mineral activities;
  • expanding eligible expenditures to include investments in eligible property used in qualifying mineral activities that are expected to produce primarily qualifying materials at mine or well sites; and,
  • adjust the calculation of recapture of the ITC to account for a five-year historical average mineral price to limit the impact of market volatility.
Electric vehicle supply chain investment tax credit

Budget 2024 announces the intention to introduce a new 10% electric vehicle (EV) supply chain ITC on the cost of buildings involved in the EV supply chain. To claim the credit, the taxpayer or related party must claim the proposed CTMITC across all three of the following supply chain segments:

  • electric vehicle assembly;
  • electric vehicle battery production; and,
  • cathode active material production.

An exception to claim the proposed CTMITC in only two of the three segments above is available under certain circumstances.

The EV ITC will apply to property acquired and available for use on or after Jan. 1, 2024. The credit rate will be reduced to 5% for 2023 and 2024 and will no longer be in effect after 2034.

Scientific research & experimental development

On Jan. 1, 2024, the federal government launched consultations to modernize scientific research & experimental development (SR&ED) tax incentives. The government sought feedback on cost-neutral ways to enhance SR&ED to better support innovative businesses and drive economic growth. Budget 2024 announced a second phase of consultations to consider specific policy parameters including consideration of extending the enhanced tax credit to Canadian public companies.

International tax

Budget 2024 introduces significant reporting requirements for crypto-asset services providers in Canada and provides the CRA the ability to waive withholding requirements for payments to non-residents who provide services in Canada.

Crypto-Asset Reporting Framework

The Common Reporting Standard (CRS) requires Canadian financial institutions to report information on financial accounts held in Canada by non-residents to the CRA.

For the 2026 and subsequent calendar years, Budget 2024 proposes to implement a Crypto-Asset Reporting Framework (CARF) into the Income Tax Act (ITA). The CARF would impose a new annual reporting requirement on Canadian-resident entities and individuals, as well as any other entities or individuals that carry on business in Canada, that provide business services effectuating exchange transactions in crypto-assets.

The policy behind this measure is to address evolving financial markets, wherein crypto assets (e.g., stablecoins or non-fungible tokens) can be transferred or held without interacting with traditional financial intermediaries and, as a result, do not need to be reported under the CRS.

Crypto-asset service providers would include crypto exchanges, crypto asset brokers and dealers, and operators of crypto-asset automated teller machines. Crypto-asset service providers would be required to report to the CRA, in respect of each customer and in respect of each crypto-asset, the annual value of:

  • Exchanges between the crypto-asset and fiat currencies;
  • Exchanges for other crypto-assets; and,
  • Transfers of the crypto-asset, including transfers from a customer to a merchant in exchange for goods or services, in excess of USD$50,000, where the crypto-asset service provider processes payments on behalf of the merchant.

Further, crypto-asset service providers are required to obtain and report detailed information on each of their customers.

Withholding tax on non-resident service providers

Persons who pay a non-resident for services provided in Canada are required to withhold 15% of the payment and remit it to the CRA. Non-residents who do not have a permanent establishment in Canada, operate international shipping services, or operate an aircraft in international traffic services, are generally exempt from Canadian tax under an applicable tax treaty. Currently, non-resident service providers who do not owe Canadian tax may either apply for a refund of the withheld amounts or apply to the CRA in advance for a waiver.

Budget 2024 proposes to allow the CRA to waive the withholding requirement on multiple transactions with a single waiver, over a specified period, for payments made to a non-resident service provider if:

  • The non-resident would not be subject to Canadian income tax in respect of the payments because of a tax treaty; or,
  • The income is exempt due to international shipping or from operating an aircraft in international traffic.

The measure would come into force upon royal assent.

EIFEL exemption for new purpose-built rental housing

The excessive interest and financing expense limitation (EIFEL) rules, currently before Parliament in Bill C-59, limits the deduction of interest and financing expenses (IFE) to a fixed percentage of a taxpayer’s earnings before interest, taxes, depreciation, and amortization.

The EIFEL rules provide an exemption for IFE incurred in respect of arm’s length financing for certain public-private partnership infrastructure projects.

Budget 2024 proposes expanding this exemption to include an elective exemption for IFE incurred before Jan. 1, 2036, in respect of arm’s length financing used to build or acquire eligible purpose-built rental housing.

Indirect tax

Extending GST relief to student residences

Since university and college student housing are not considered long-term residences, new student housing could not qualify for the enhanced (100%) GST rental rebate. Budget 2024 proposes to amend the rules to apply the normal GST/HST rules that apply to other builders (i.e., paying GST/HST on the final value of the building) to new student housing projects. New rebate conditions would allow student housing provided by universities, public colleges, and school authorities that operate on a not-for-profit basis to qualify for the 100% rebate. The relaxed rebate conditions would not be extended to universities, public colleges, and school authorities that operate on a for-profit basis.

The amendments apply to student housing projects that began construction after Sept. 13, 2023, and before 2031, provided that construction is completed before 2036.

Imposing GST on masks

Budget 2024 proposes to repeal the temporary zero-rating of certain face masks or respirators and certain face shields under the GST/HST. This measure would apply to supplies made on or after May 1, 2024.

Tobacco and vaping product taxation and importation

Budget 2024 proposes to increase the tobacco excise duty rate by $4 per carton of 200 cigarettes, along with corresponding increases to the excise duty rates for other tobacco products such as cigarettes, manufactured tobacco, and cigars. The total rate of $5.49 includes the automatic inflationary adjustment of $1.49 per carton of 200 cigarettes that took effect on April 1, 2024.

Inventories of cigarettes held by certain manufacturers, importers, wholesalers, and retailers at the beginning of the day on April 17, 2024, would be subject to an inventory tax of $0.02 per cigarette (subject to certain exemptions) to account for the $4 increase. Taxpayers would have until June 30, 2024, to file a return and pay the cigarette inventory tax.

Additionally, Budget 2024 proposes to provide a new prescribed limit of up to 2500 grams of packaged raw leaf tobacco for importation for personal use, along with a consequential amendment to the definition of “packaged” for raw leaf tobacco. This measure would come into force on the first day of the month following royal assent.

Budget 2024 also announces the Government’s intention to increase the vaping product excise duty rate by 12% to come into force on July 1, 2024.

Private Business

While Budget 2024 introduces and expands on various capital gains exemptions, the government proposes an increase in capital inclusion rates from 50% to 66.67% for individuals with capital gains in excess of $250,000 and for all capital gains earned by trusts.

Increase to the capital gain inclusion rate for individuals and trusts

Budget 2024 proposes an increase to the capital gains inclusion rate on capital gains above $250,000 annually for individuals and all capital gains realized for trusts from 50% to 66.67% effective June 25, 2024. This $250,000 threshold will be realized net of any current-year capital losses as well as capital losses from prior years applied to reduce current-year capital gains. The threshold will also account for any reductions to net capital gains in respect of the lifetime capital gains exemption (LCGE), proposed employee ownership trust capital gains exemption, and the newly proposed Canadian entrepreneurs’ incentive. Net capital losses from prior years will continue to be deductible against current-year taxable capital gains by adjusting their value to reflect the inclusion rate of the capital gain being offset.

To reflect the new capital gains inclusion rate, individuals claiming the stock option deduction would be entitled to a deduction at 33.33% of the taxable benefit to the extent the combined capital gains and stock option benefit exceeds $250,000.

Capital gains from the sale of a principal residence (PR) and any gains realized on the sale of a PR will remain tax-free. However, properties that have been acquired as an investment asset and are flipped (i.e., bought and sold within a year) will continue to be treated as business income unless certain exemptions are met.

Increase to the lifetime capital gains exemption

Budget 2024 proposes to increase in the LCGE from $1,016,836 to $1,250,000 on the sale of qualified small business corporation shares and eligible farming and fishing property effective June 25, 2024. This is an increase beyond the current level of inflation and was likely included due to the increase in capital gains inclusion rates.

Introducing the Canadian entrepreneurs’ incentive

To continue to encourage entrepreneurship and competitiveness, the government is proposing to introduce a Canadian entrepreneurs’ incentive which will reduce the inclusion rate on the disposition of qualifying shares by an eligible individual. Eligible capital gains would be included at a rate of 33.3% starting on Jan. 1, 2025 with a lifetime limit that would be phased by increments of $200,000 each year until it reaches a lifetime maximum of $2 million by Jan 1, 2034.

This incentive is available to founding investors in certain sectors who own at least 10% of shares in their business from initial subscription and where the company has been their principal employment for at least five years. The share cannot represent a direct or indirect interest in a professional corporation.

This measure, in conjunction with the enhanced LCGE, is expected to attract entrepreneurship as it will provide a combined exemption of at least $3.25M on the sale of a business when fully rolled out.

Alternative minimum tax amendments

Budget 2024 builds on the existing proposed changes to the alternative minimum tax (AMT) introduced in Budget 2023. The amendments to these proposed rules include:

  • an 80% deduction of the charitable donation tax credit in the computation of AMT, as opposed to the previously proposed 50%;
  • a full deduction of the guaranteed income supplement, social assistance, and workers’ compensation payments;
  • a full claim of the federal logging tax credit;
  • employee ownership trusts being exempt from AMT; and
  • allowing certain previously disallowed credits to be eligible for AMT carryforward (i.e., federal political contribution tax credit, investment tax credits, and labour-sponsored funds tax credit)

The government proposes additional exemptions for certain trusts established for the benefit of Indigenous groups, provided all or substantially all of the contributions made to the trust in the year are amounts paid under the law or settlement agreement in place.

These amendments to this measure would apply to taxation years that begin on or after Jan. 1, 2024.

Employee ownership trust capital gains exemption

In the 2023 Fall Economic Statement, the government proposed to exempt the first $10 million in capital gains realized on the sale of a business to an EOT from tax, subject to certain conditions. Budget 2024 proposes to provide further details on this exemption.

If the following conditions are met, an individual would qualify for the exemption:

  • The disposed shares cannot be of a professional corporation;
  • The transaction is a qualifying business transfer (QBT) in which the acquiring trust is not already an EOT;
  • In the 24 months immediately before the QBT, the transferred shares were exclusively owned by the individual claiming the exemption and over 50% of the fair market value (FMV) of the assets were used in active business;
  • The individual disposing of the shares was actively engaged in the qualifying business on a regular and continuous basis for a minimum of 24 months; and,
  • Immediately after the QBT, at least 90% of the beneficiaries of the EOT were resident in Canada.

The exemption will be shared among all individuals disposing of shares to an EOT. Prescribed disqualifying events would deny or limit the exemption.

These proposals will be effective for qualifying dispositions of shares that occur between Jan. 1, 2024 and Dec. 31, 2026. Further details on the proposed exemption will be released in the coming months.

Other measures

Other measures of note include:

  • Legislation to be introduced for a new opt-in sales tax framework for fuel, alcohol, cannabis, tobacco, and vaping in Indigenous communities, including appropriate revenue-sharing arrangements.
  • Increased efforts to combat money laundering and terrorist financing, including an eased process for warrant applications under the ITA and ETA to simplify the evidence-gathering process in tax evasion investigations.
  • Additional funding to support the CRA to reduce call centre wait times.
  • Building a single sign-in portal for federal government services.
  • Automatic enrolment in the Canada Learning Bond for eligible children born in 2024 who do not have a Registered Education Savings Plan (RESP) opened by the age of four. Additionally, the age to retroactively claim the bond will be increased from 20 to 30 years.
  • Increases to the full-time Canada student grants from $3,000 to $4,200 per year, and interest-free Canada student loans from $210 to $300 per week starting with the 2024/2025 school year.
  • Extending status as a qualified donee for qualifying foreign charities from 24 to 36 months.

Previously announced measures

Intention to proceed with numerous previously announced tax measures, including:

  • Legislative proposals released Dec. 20, 2023 regarding the clean hydrogen and clean technology management ITCs, concessional loans, and short-term rentals.
  • Legislative and regulatory proposals released in the 2023 Fall Economic Statement, most notably including changes to the underused housing tax.
  • Legislative proposals released Aug. 4, 2023, many of which are already captured in Bill C-59, most notably including the carbon capture, utilization, and storage ITC, the clean technology ITC, employee ownership trusts, alternative minimum tax, Pillar Two, Digital Service Tax, EIFEL, and changes to the general anti-avoidance rule and intergenerational transfer exemptions.
  • Legislative amendments released June 6, 2023 to implement changes discussed in the transfer pricing consultation paper.
  • Legislative amendments discussed in Budget 2023 regarding the dividend received deduction for financial institutions.
  • Legislative proposals released Aug. 9, 2022, most notably regarding substantive Canadian-controlled private corporations.
  • Other legislative and regulatory proposals introduced in 2021 and earlier, including changes to the hybrid mismatch arrangement rules and information requirements for GST/HST input tax credit claims.

 

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Industry Highlights

Construction & Real Estate

Canada’s housing supply is targeted with tax incentives relating to the construction of certain rental housing, including accelerated CCA  and an exception from interest deductibility limitations.

Manufacturing

Canada continues its commitment to environmental measures by expanding clean economy tax credits.

Not-for-Profit

To improve the rules related to registered charities, Budget 2024 extends the period for qualifying foreign charities to 36 months and simplifies the requirements for issuing donation receipts.

Professional Services

Dispositions of shares of professional corporations will be excluded from the Canadian entrepreneurs’ incentive but are compensated by an increased lifetime capital gains exemption.

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Personal Services Business (PSB): CRA Education Initiative

In general, a personal services business (PSB) exists where the individual performing the work would be considered to be an employee of the payer if it were not for the existence of the individual’s corporation. These workers are often referred to as incorporated employees. Where it is determined that the income is earned from a PSB, the corporate tax rate increases significantly (potentially as high as 39% over the small business rate, depending on the province). In addition, significantly fewer expenditures are deductible against the income.

Since 2022, CRA has been conducting an educational pilot project in respect of PSBs. They have recently published findings from the project and highlighted future planned phases.

Phase I – Identifying companies that hire PSBs

Phase I of the project was conducted from June to December 2022. The results were as follows:

  • approximately 10% of participating corporations were likely to be carrying on PSBs;
  • approximately 64% of potential PSBs were incorrectly claiming the small business deduction (an average of $16,711 of additional federal corporate tax would be payable if this were corrected);
  • nearly 74% of potential PSBs work in the following three industries:
    • transportation and warehousing (35%), with 95% of these working in freight trucking;
    • professional, scientific and technical services (26%); and
    • construction (13%).
Phase II – Identifying potential PSBs

CRA indicated that Phase II is planned for October 2023 to June 2024, and will examine approximately 2,100 randomly selected corporations identified as potential PSBs. The examination will include a voluntary interview and focus on the 2022 tax year. CRA indicated that they hope to gain greater insight into how and why PSBs operate the way they do.

Phase III – Assisted compliance for PSBs

CRA indicated that the timing of Phase III has not yet been determined. They expect to address the 2022 and subsequent tax years with continued education, review of PSBs and assisted compliance of non-compliant PSBs.

ACTION ITEM: Identification of PSBs has become a focal point for CRA. If there is a risk of your corporation carrying on a PSB, inquire as to the corporation’s exposure and potential mitigation strategies.

 

2024 Provincial Budget – Ontario

On March 26, 2024, the Minister of Finance Peter Bethlenfalvy released the 2024 Budget: Building a Better Ontario.  The budget focuses on limited tax relief due to the current budget deficit, municipal vacant homes tax, and extended relief for gas and fuel taxes.

Business tax measures:

The corporate tax rates remain unchanged at:

  • Small business tax rate: 12.2%
  • General corporate tax rate: 26.5%
  • Manufacturing and processing tax rate: 25.0

Modifications to the  (OCASE) Tax Credit:

The Ontario Computer Animation and Special Effects (OCASE tax credit), which applies to eligible labour expenditures related to computer animation and special effects activities, has been modified:

  • Qualifying corporations must now have a minimum eligible labor expenditure of $25,000 for each production claimed within a specific time limit.
  • This change eliminates the need for film or television productions to be certified for other tax credits to qualify for OCASE.
  • Effective for eligible productions where computer animation and special effects work begins on or after March 26, 2024.

Individual tax measures:

New provincial policy framework to assist housing affordability

In 2017, Ontario’s Fair Housing Plan was implemented empowering Toronto and other interested municipalities with an option to introduce a tax on vacant homes. Currently, Toronto, Ottawa, and Hamilton have the authority to impose such tax. To help address housing affordability issues in the province, the Ontario Budget 2024 proposes to extend authority to all municipalities to impose a tax on vacant homes. Municipalities will be supported through a new, forthcoming provincial policy framework that will set out best practices for implementing the tax, including encouraging a higher tax rate for vacant homes owned by foreigners. There is no date set for implementing this new policy framework.

Other tax measures:

Updates to senior citizen annual income payments

The Ontario Guaranteed Annual Income System (GAINS) provides monthly, non-taxable payments to qualifying low-income seniors. Starting July 2024, Ontario Budget 2024 proposes to increase the maximum monthly benefit from $83 to $87 for eligible single seniors and from $168 to $174 for couples. Additionally, going forward, the benefit will be indexed for inflation annually.

To expand the number of eligible recipients, the annual private income eligibility threshold is proposed to be increased from $1,992 to $4,176 for single seniors and from $3,984 to $8,352 for couples.

Ontario extends gasoline and fuel tax cuts

On July 1, 2022, the gasoline and fuel tax rates were cut by 5.7 and 5.3 cents per litre, respectively, reducing both rates to 9 cents per litre. Ontario Budget 2024 proposes to extend these rate cuts until Dec. 31, 2024.

Changes to alcohol taxation

The government plans to scrap the basic tax for Ontario wine and wine coolers in on-site winery retail stores starting April 1, 2024. A review of taxes and fees on other alcoholic beverages will also be conducted with the aim to boost competitiveness for Ontario producers and consumers.

Enhancements to the non-resident speculation tax

Ontario implemented a non‐resident speculation tax (NRST) in October 2022 on residential property purchased by a foreign entity. The government is aiming to strengthen the NRST with amendments to support compliance and improve fairness. In addition, Ontario is taking steps to increase information sharing between provincial, federal, and municipal governments to better understand vacancy and foreign‐purchasing patterns.

 

T-SLIPS: Filing and Distribution Issues

Various changes and issues have arisen in respect of T-slips to be filed and processed for the 2023 year.

Dental benefits

Beginning with the 2023 year, issuers of the T4 Statement of Remuneration Paid and T4A, Statement of Pension, Retirement, Annuity, and Other Income must report whether the recipient or any of their family members were eligible to access dental insurance or dental coverage of any kind (including health spending and wellness accounts) from their current or former employment.

The T4 will include new box 45, employer-offered dental benefits.

The T4A will include a new box 015, payer-offered dental benefits. This box must be completed if an amount is reported in box 016, pension or superannuation.

CRA indicated that it is mandatory to indicate whether the employee/former employee, or any of their family members were eligible, on December 31 of that year, to access any dental care insurance, or coverage of dental services of any kind, that the employer offered.

The employer/issuer must select which of the following scenarios apply.

  1. Not eligible to access any dental care insurance, or coverage of dental services of any kind
  2. Payee only
  3. Payee, spouse, and dependent children 4.Payee and their spouse 5.Payee and their dependent children
Electronic Distribution

In a December 13, 2023, update to CRA’s webpage, CRA discussed the ability to distribute T4, T4A, T5, and T4FHSA slips using the issuer’s secure electronic portal without obtaining written or electronic consent from the employees or recipients. However, using a secure electronic portal is not available where any of the following situations exist:

  • the employee or recipient requested that paper copies of the slips be provided;
  • the employee or recipient cannot reasonably be expected to have access to the slips in electronic format at the time the slips are issued; or
  • for T4s, if the issuer distributes the T4 when the employee is on extended leave or is a former employee at the time the slip is issued.

Employers/payers must also provide the option to receive these slips in paper form.

If distributing these slips by email, the employer/payer must receive consent in writing or electronic format before sending by email.

Electronic filing thresholds

Effective January 1, 2024, certain information returns must be filed electronically with CRA where more than 5 information returns (reduced from 50) of a particular type are required for a calendar year. The impacted information slips include forms NR4, T5007, T5018, T4ANR, T5, T5013, T4A, T4, and T3. A penalty of $125 will apply where between 6 and 50 slips are filed on paper.

Errors on T-slips

In a recent communication, CRA addressed the concern that auditors and appeals officers may base a decision on issued T-slips without considering the possibility that the issuer made an error in their preparation.

CRA stated that it is the taxpayer’s responsibility to verify the validity and accuracy of the information slip. If the taxpayer notices an error, the taxpayer should contact the issuer to attempt to discuss/resolve the issue. CRA noted that they cannot validate the accuracy of a slip as the relevant information to do so is retained by the issuer and the taxpayer. If the issuer refuses to correct the form, the taxpayer can inform CRA by filing an employee complaint with the employer accounts and services section.

When a taxpayer objects to CRA’s assessment/ reassessment, the taxpayer must provide the reason for the objection. The appeals officer should investigate the accuracy of the information slip when it is part of the disputed issue. The appeals officer may also ask the taxpayer to provide representations.

ACTION ITEM: Various changes to T-slip completion, filing, and distribution are effective for 2023 slips, filed in early 2024. Ensure that these changes are incorporated into your business processes.

CANADA DENTAL CARE PLAN (CDCP): New Income-tested Benefit

On December 11, 2023, Health Canada issued details on the Canada dental care plan that would cover a wide variety of dental services for certain Canadian residents. The plan will be rolled out from late 2023 to 2025.

To be eligible, the individual and their spouse or commonlaw partner (if applicable) must meet all of the following conditions:

  • have an adjusted family net income (AFNI) of less than $90,000;
  • be a Canadian resident for tax purposes;
  • have filed their tax return in the previous year; and
  • not have access to dental insurance, meaning that it is not available through the taxpayer’s or a family member’s employer or pension, or not purchased through a group plan.

Eligibility for children under 18 will be determined by their parents’/guardians’ eligibility.

Individuals will need to meet the eligibility requirements annually. More information on the annual reassessment process will be provided by the government at a later date.

The CDCP will pay for eligible services provided by an oral health provider (such as dentists, denturists, dental hygienists, and dental specialists), less a portion that is to be paid directly by the patient (the “co-payment”). No copayment is required if AFNI is under $70,000. The co-payment starts at 40% for AFNI between $70,000 and $79,999 and increases to 60% for AFNI between $80,000 and $89,999.

Oral health providers are encouraged to follow the CDCP fees, which are not the same as the provincial and territorial fee guides, so their patients do not face additional charges at the point of care. Oral health providers who have enrolled with CDCP will bill the plan directly. Health Canada noted that patients should ask if the provider has enrolled in the CDCP when booking their appointment to limit unexpected out-of-pocket payments.

The program will be first rolled out to seniors with application invitation letters starting in December 2023. Eligible seniors will be able to engage in covered services as early as May 2024. Those with a disability tax credit certificate (T2201) or under 18 years of age can begin to apply as of June 2024. The remaining eligible residents will be able to apply in 2025.

CRA noted that only those who are 70 years old or older by March 31, 2024, have AFNI of less than $90,000 for 2022, and were Canadian tax residents for 2022 will receive the initial application instruction letters.

Once an individual has applied and is determined to be eligible, Service Canada will share the individual’s information with Sun Life, the contracted service provider, for enrolment into the CDCP. Eligible individuals will receive a member card, and be notified of the start date of their coverage. The start date will vary based on when each group can apply, when the application is received and when enrollment is completed.

Oral health providers will be able to enroll voluntarily as a participating CDCP provider directly with Sun Life in early 2024. Details on this process will be available on Health Canada’s webpage when enrollment opens. Oral health providers enrolled in the CDCP will be required to submit the claims directly to Sun Life for payment rather than having patients seek reimbursement from Sun Life for services covered under the plan.

ACTION: If you are an eligible individual, apply for this new benefit when invited. If you are a oral health care provider, consider enrolling as a provider in the plan.

Working from Home Expenses: Employment Expenses

The $2/day flat rate method available to claim expenses for employees working from home was a temporary administrative measure only available from 2020 to 2022; it is no longer available in 2023. As such, employees working from home can only use the detailed calculation when claiming expenses.

For 2023 and subsequent years, a deduction can only be claimed where one of the following criteria is met:

  1. the work space was the place where the individual principally (more than 50% of the time) performed their duties of employment; or
  2. the individual used the space exclusively during the period to earn employment income and used it on a regular and continuous basis for meeting clients, customers, or other people with respect to employment.

CRA indicated that they would consider i) to be met by employees who were required to work from home more than 50% of the time for a period of at least four consecutive weeks in the year.

ACTION ITEM: The $2/day temporary flat rate method cannot be used by employees to claim home office expenses in 2023. Instead, receipts and records must be kept to make claims under the detailed method.

How to Make a Payment with Canada Revenue Agency for Your Business

Online Banking Payments

Make a payment to the CRA through online banking, the same way you pay your phone or hydro bill.

  • Sign in to your financial institution’s online business banking service.
  • Under “Add a payee,” look for an option such as:
    • Federal – Corporation Tax Payments – TXINS
    • Federal – GST/HST Payment – GST-P (GST-P)
    • Federal Payroll Deductions – Regular/Quarterly – EMPTX – (PD7A)
    • Federal Payroll Deductions – Threshold 1 – EMPTX – (PD7A)
    • Federal Payroll Deductions – Threshold 2 – EMPTX – (PD7A)
    • Federal – Canada emergency wage subsidy repayment
  • Enter your 15 digit business number as your CRA account number.

You are responsible for any fees that may be charged by your financial institution.


Debit Card Payments Via ‘My Payment’

Make a payment with your Visa® Debit, Debit MasterCard®, or Interac® Online debit card.

My Payment is an electronic payment service offered by the CRA that uses Visa® Debit, Debit MasterCard® or Interac® Online for businesses to make payments directly to the CRA using their bank access cards.  The CRA does not charge a fee for using the My Payment service. Credit Cards not accepted with this service.

To use My Payment you need a card with a Visa Debit logo, a Debit MasterCard logo, and/or an Interac Online logo from a participating Canadian financial institution.

If your bank access card has both a Visa Debit logo and an Interac logo, use the Visa Debit option to pay.

If your bank access card has both a Debit MasterCard logo and an Interac logo, use the Debit MasterCard option to pay.

Before you start ask your financial institution about your daily or weekly transaction limit and any fees for making online payments. The CRA does not charge a fee for using this service.

CRA’s My Payment Webpage


Pay Through a Canadian Financial Institution

To make a payment at your Canadian financial institution, you will need a personalized remittance voucher. Financial institutions will not accept photocopies of remittance vouchers or payment forms.

You can make a payment in foreign funds.  The exchange rate you receive for converting the payment to Canadian dollars is determined by the financial institution handling your transaction on that day. You are responsible for any fees that are incurred.

Arrangements will need to be made with your financial institution if you are making a payment of more than $25 million.

Be sure to provide accurate information to help the CRA apply your payment to the intended account.  A personalized remittance voucher will help CRA apply your payment properly.  You can request personalized remittance vouchers online or by phone.


Mailing Your Payment

The government released legislation, effective January 1, 2024, that any tax payment or remittance made by a corporation to the CRA exceeding $10,000 must be done through electronic means.

If your tax payments exceed $10,000, you should no longer make these payments using a cheque.

It is highly encouraged to remit payments to the CRA electronically even if the amount is less than $10,000 as electronic payments are processed quicker. This will also significantly reduce the risk of lost or misapplied payments. Furthermore, it is usually far easier and faster for the CRA to trace a lost or misapplied electronic payment than a cheque mailed to the CRA.

If you still wish to send a cheque or money order, make it payable to the Receiver General for Canada and include your remittance voucher. Note: Payment is considered received on the date CRA receives the cheque, not the postmark date.

Mailing address:
Canada Revenue Agency
PO Box 3800 STN A
Sudbury ON P3A 0C3


Payment by Pre-Authorized Debit (PAD)

Set up a pre-authorized debit agreement and eliminate the need for postdated cheques.

Pre-authorized debit (PAD) is a secure, online, self-service payment option for individuals and businesses. This option lets you set the payment amount that you authorize the CRA to withdraw from your Canadian chequing account to pay your taxes on a date, or dates, of your choosing.

Due to the processes that must take place between the CRA and the financial institution, the taxpayer’s selected payment date must be at least 5-business days from the date their PAD agreement is created or managed.

See Federal holidays for a list of non-business days.

There is a ‘pay by pre-authorized debit’ option through GST/HST netfile available for an amount owing.

A PAD agreement can only be set up online, not over the phone.

Steps to create a pre-authorized debit agreement for businesses

To create a PAD you have to be registered for My Business Account.  Click on ‘CRA register’ or ‘Continue to Sign-In Partner’ and complete the steps.  Once completed, your official access code will be sent to you by mail.  Once you enter the access code into My Business Account you will have full access, which allows you to view, create, modify, cancel, or skip a payment.

This option is not designed to be used frequently due to the limitations on payments and the fees involved.

Steps to create a pre-authorized debit agreement for individuals

To create a PAD, you must to be registered for My Account. Once signed in:

  • Select the ‘Proceed to pay’ button and select the ‘Pay later’ option to create a PAD agreement.
  • Access ‘Manage pre-authorized debit’ under the Related services within the Accounts and payments section to view, modify, cancel, or skip a payment.
  • A PAD agreement can also be created within MyCRA, for an amount owing, by selecting the ‘Proceed to pay’ button and the ‘Pay later’ option. Your credentials are the same as in My Account.

Cash or Debit Card Payments

Make a payment with cash or debit in person at any Canada Post outlet.

You can pay your individual tax, benefits, and credits repayments, Part XIII – non-resident withholding tax, source deductions, T2 corporation tax, or GST/HST payments to the Canada Revenue Agency (CRA) in person with cash or debit card at any Canada Post outlet across Canada for a fee.  To do so you will need a self-generated quick response (QR) code.  This QR code will be personalized by you and will contain information that will allow the CRA to credit your account.  Canada Post uses a third-party service provider to generate and process the QR code.  To create your QR code, see the link below*.  

*Generate your QR code here.

It is a simple two-step process.  On the site, you will be asked to select the tax type you want to pay, your social insurance number or account number, your name, and the amount you want to pay.  A service fee will be charged based on the amount of the payment and displays when creating the QR code.

When you have completed the required fields, press ‘Continue’ to select where you want your QR code to display.  The choices are:  Send to Email; Send to Mobile or Print at Home.  You can choose any or all of these options.  If you choose Send by Email, you will need to enter your email address.  If you choose Send to Mobile, you will need to enter your 10-digit Mobile Number.  If you choose to print at home, a print icon will display.

Be sure to bring your phone or printed QR code to any Canada Post outlet to make a payment.  The clerk will scan your QR code and ask you how much you want to pay.  The amount you initially entered is for your reference only and is not displayed to the clerk.  The clerk does not see any CRA account information. The clerk will key in the amount you want to pay, add the service fee and accept payment by cash or debit card.  The clerk will then give you a paper receipt with the amount paid and the reference number for your files.


Credit Card Payments via Third-Party Service Providers

You can make a payment with a credit card by using a third-party service provider.

The third-party service provider will send your business or individual payment and remittance details online to the CRA for you.  

Ensure that you set up your payment well in advance of your payment’s due date as payment delivery is not immediate, and is determined by the third-party service provider that is used.

Note: Third-party service providers charge a fee for their services. Click here for a full list of third-party service providers.  


Payments via Wire Transfer for Non-Residents

Non-residents who do not have a Canadian bank account can make payments to the CRA by wire transfer.

Wire transfers for submitting your non-resident GST/HST security deposit are not available at this time.

What you need to know

All wire transfers must be in Canadian dollars.

Your financial institution may have standard charges that apply to wire transfer payments.  Make sure that your financial institution does not deduct the wire transfer fee from the total payment amount due as this will result in an underpayment.

Wire details

You will need the following information to transfer funds to the CRA’s account:

Name of banking institution: The Fédération des Caisses Desjardins du Québec
100 rue de Commandeurs
Levis, Quebec
Canada G6V 7N5
SWIFT: CCDQCAMM
Bank number: 815
Transit number: 98000
Beneficiary name: Receiver General of Canada
Beneficiary account number: MFI09708060815CAD3
(if space limitations, use at least: 815980000970806)
Beneficiary address: 11 Laurier Street
Gatineau, Quebec K1A 0S5
Description field: Authorization number: 122-25678-CRA
ABA code, if required: 081598000
Charges field: “OUR”

To avoid processing delays include the following information with your wire transfer:

For Businesses:

  • non-resident account number or business number
  • business name
  • period end date
  • fiscal year
  • telephone number
  • return/remittance
    • Provide a copy of your tax remittance or GST/HST return/remittance by fax to the CRA:
    • Attention: Revenue Processing Section
    • Fax: 204-983-0924
    • Provide the amount paid, the date paid and the confirmation number if available

Avoid late fees

You are responsible for making sure the CRA receives your payment by the payment due date. If you are using a third-party service provider, please ensure that you clearly understand the terms and conditions of the services that you are using.

The Tax Free Savings Account

In 2009, the federal government introduced the Tax Free Savings Account (TFSA) to give Canadians another means to save for their financial goals.  The TFSA is similar to the Registered Retirement Savings Plan (RRSP) in some ways, but different in others.

TFSA Quick facts:

  • Investments grow and compound on a completely tax-free basis within the TFSA.
  • Contributions to the TFSA are not tax-deductible, but withdrawals are tax-free and can be made at any time.
  • Unused contribution amounts accrue and can be used in future years.
  • The current annual contribution limit is $7,000 per person, increasing in $500 increments based on inflation.
  • Anyone who was 18 years of age in 2009 and resident in Canada during the period between 2009-2024 and has never contributed to a TFSA has a contribution limit of $95,000.
  • Withdrawals from the TFSA do not impact Old Age Security (OAS) benefits.

Things to consider when deciding to use a TFSA:

  • Consider how the TFSA fits within your overall financial plan –it may be better to maximize RRSPs, RESPs, or pay down personal debt first.
  • The TFSA can complement other retirement savings and since withdrawals are tax-free, they could help you avoid potential Old Age Security (OAS) claw-back.
  • Since contributions can be made at any age over 18, a TFSA can be a powerful estate planning tool in building a sizable tax-free asset for an estate or heirs – a benefit similar to using permanent life insurance.  If a specific beneficiary is named in a TFSA, the estate administration tax (probate fees) can be avoided on the value of the plan.
  • Consider using existing personal non-registered savings to maximize TFSA contribution limits in order to shelter future investment income from tax.
  • Investors owning a corporation may want to consider withdrawing additional dividends to fund a TFSA.  Although the additional income from the corporation would be taxable, future investment earnings on those contributions would be tax-free.
  • Both capital and growth can be withdrawn on a tax-free basis.  The total amount withdrawn can then be re-contributed in the next calendar year, or any time afterwards, with no impact on annual contribution limits.

A DJB Wealth Management Advisor can help you make the right choice.

New Trust Reporting: Unexpected Exposure

Breaking news! The CRA will not require bare trusts to file a T3 Income Tax and Information Return (T3 return), including Schedule 15 (Beneficial Ownership Information of a Trust), for the 2023 tax year, unless the CRA makes a direct request.

Changes requiring more trusts (and estates) to file tax returns and more information to be disclosed, first proposed in the 2018 Federal Budget, were delayed several times in the legislative process. As such, many trusts and estates (including many arrangements not commonly considered “trusts”) will be required to file for the first time.

Required reporting has been expanded to include situations where a trust acts as an agent for its beneficiaries (often referred to as a bare trust). This occurs when the person on title or holding the asset is not the true beneficial owner but rather holds the asset for the benefit of another party. There are many common situations that may constitute reportable bare trusts in which no lawyer or written agreement may have ever been involved or drafted. Many parties involved in a bare trust arrangement may not realize that they are, much less that there may be a filing requirement with CRA.

The following lists some examples of potential bare trust arrangements; CRA has not commented on several of the examples below. It is uncertain how they will interpret and enforce the law.

  • a child on title of a parent’s home (without the child having beneficial ownership) for probate or estate planning purposes only;
  • a parent on title of a child’s property (without the parent having beneficial ownership) to assist the child in obtaining a mortgage;
  • one spouse being on title of a house or asset although the other spouse is at least a partial beneficial owner;
  • a parent or grandparent holding an investment or bank account in trust for a child or grandchild;
  • a corporate bank account opened by the shareholders with the corporation being the beneficial owner of the funds;
  • a corporation being on title of an individual’s real estate, vehicle, or other asset, and vice-versa;
  • assets registered to one corporation but beneficially owned by a related corporation;
  • use of a nominee corporation for real estate development purposes;
  • a property management company holding operational bank accounts in trust for their clients, or individuals managing properties for other corporations holding bank accounts for those other corporations; • a lawyer’s specific trust account (while a lawyer’s general trust account would largely be carved out of the filing requirements, a specific trust account would not); and
  • a partner of a partnership holding a bank account or asset for the benefit of all the other partners of a partnership.

In addition to bare trust arrangements, other trusts that have not had to file in the past may have a filing obligation under these expanded rules.

Exceptions from filing a return for trusts and bare trust arrangements are available in limited cases. If filing is required, the identity and residency of all the trustees, beneficiaries, settlors, and anyone with the ability (through the terms of the trust or a related agreement) to exert influence over trustee decisions regarding the income or capital of the trust must be disclosed.

Failure to make the required filings and disclosures on time attracts penalties of $25 per day, to a maximum of $2,500, as well as further penalties on any unpaid taxes. New gross negligence penalties may also apply, being the greater of $2,500 and 5% of the highest total fair market value of the trust’s property at any time in the year. These will apply to any person or partnership subject to the new regime.

ACTION ITEM: Consider whether you may have a bare trust arrangement. If so, or if you are unsure, contact us to discuss.