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Message from the

Executive Director

February 2018


Hello to all CTF members—

February has been a busy month. Actually, so was January, and December, and—frankly, most all of the last 12 months. All of the tax professionals that I have spoken to seem fully occupied with analyzing changes to the law and helping their clients understand and adapt. This is the case regardless of whether those clients are individuals or corporations, large taxpayers or small, residents or non-residents of Canada. The US tax reform and the Canadian changes to the taxation of private corporations are obviously very different in scope and focus, but each set of legislative proposals has the same fundamental effect: to alter the underpinnings of traditional and widely accepted tax planning. Very few taxpayers will not be affected by one or the other of these sets of amendments, and many circumstances will require the navigation of both.

Beyond the impact of these changes on specific taxpayers is the broader narrative about Canadian tax policy and the competitive positioning of our country in an uncertain and rapidly evolving global economy. Last July’s taxation proposals for private corporations caused considerable consternation, with many questioning the government’s level of support for entrepreneurs and its understanding of small business. The government has not yet provided a thorough response to the US tax reform package enacted in December, and this has caused some angst in the business community. Uncertainty about the future of NAFTA is another source of concern. 

Time is required to properly digest the complex US proposals (after all, the US Treasury itself has not yet released regulations), but it will be very important for our government to acknowledge the proposals’ impact on Canada and to indicate a path forward. Canada has many advantages. Perhaps we have relied too much, for too many years, on our competitive tax rate relative to the United States’. Now that we no longer enjoy the tax rate advantage, a new course needs to be plotted. 

The federal budget was delivered on February 27. The government chose not to respond directly to US tax reform, simply noting that “over the coming months … Finance Canada will conduct detailed analysis of the U.S. federal tax reforms to assess any potential impacts on Canada.” We look forward to this process and to the recommendations that follow. In the interim, the Foundation will be hosting, on April 5, a one-day conference and national webcast dedicated to the US tax reform and its impact on Canadian taxpayers. It will be a challenge to cover the full range of issues—from personal taxation to international issues—in a single day, but we expect to make an important start on analyzing and discussing matters that will preoccupy us for years to come.

The budget’s commentary on US tax reform is limited to a single sentence, but it is more expansive on other fronts. Returning to the subject of the taxation of private corporations, the government has included a revised and much simpler proposal for passive income that deftly tackles the issue in a different way. Rather than adjusting the tax rate on investment income, the new approach will grind the small business deduction as passive income in the corporation increases beyond a $50,000 annual threshold. A related measure will generally limit access to RDTOH to non-eligible dividends on the basis that access to refundable tax should be limited to distributions funded from underlying investment income taxed at the high rate. Both of these measures will apply to taxation years that begin after 2018. Finally, the government reiterated its support for the previously announced reductions in the small business tax rate and the income-sprinkling measures contained in draft legislation of December 13, 2017. Perhaps this budget marks the conclusion of the unpredictable private corporation tax saga that started last July. 

The budget contains a host of other tax measures, most of which are narrowly targeted. Personal tax measures are relatively modest and include new reporting obligations for certain trusts, commencing in 2021. The business and international measures are generally focused on specific structures or transactions considered abusive, such as surplus-stripping arrangements. The government is increasing its financial support for the CRA’s ongoing efforts to combat tax evasion. Finally, the sales and excise tax measures include legislation to introduce the new excise duty framework for cannabis products.

Overall, the 2018 budget reflects this government’s continuing focus on the middle class. Additional areas of emphasis include reconciliation with indigenous peoples and support for innovation. The foray into gender-based analysis, initiated in 2017, has been significantly enhanced into a much more sophisticated approach that cuts across a variety of initiatives, with a commitment to (1) the comprehensive application of GBA+ to policy development, (2) the collection of robust data, and (3) a framework to measure results. As this data is collected, it will be interesting to see whether the framework expands to include an assessment of the impact of tax legislation—a dimension not currently contemplated by the analysis (for more on this topic, see Isabella Bakker and Lisa Philipps, “Gender Distribution of Tax Expenditures,” Canadian Tax Highlights Volume 25, Number 10, October 2017). 

Finally, I would like to note one measure in the budget that could easily be overlooked because it is not a tax measure per se. At our annual conference last November, many members of the Foundation heard Chief Justice Rossiter’s remarks about the concerning situation at the Tax Court of Canada, whose resources have been increasingly strained by the dramatic increase in the volume and complexity of the cases heard by the court. It was therefore most encouraging to read in this year’s budget that additional funding is to be provided to the Courts Administration Service for new front-line registry and judicial staff. Most of them will be allocated to the Tax Court. 

See you next month.


Heather L. Evans,
Executive Director and CEO

3/22/2018 9:45:26 AM