2018 Federal Budget: Equality and Growth
In partnership with Canaccord Genuity, BDO Canada has provided the following summary of the Budget that was released on February 27th: (source: BDO Canada)
On February 27, 2018, the Honourable Bill Morneau presented his third budget as Minister of Finance. The 2018 Federal Budget, entitled “Equality and Growth,” focuses on:
1. Improving the economic success of women and advancing Canada’s gender equality goals.
2. Enhancing innovation funding to improve the competiveness of the Canadian business environment.
3. Continuing with its agenda of changing the tax rules for private companies by introducing new measures that impact the taxation of passive investments.
The federal government announced that the deficit for the 2017-18 fiscal year is $19.4 billion, which is lower than the $28.5 billion deficit predicted in last year’s budget. This is due to the enhanced performance of the Canadian economy over the past fiscal year. For the 2018-19 fiscal year a deficit of $18.1 billion is forecast, which includes a $3 billion contingency reserve. A significant concern for the Canadian business community is the balancing of the budget and a plan for the elimination of the deficit, yet this budget contains no mention of a plan for a return to surplus.
The key issues in the 2018 Budget for Canadian businesses include:
1. Gender Equality
The government has made it a priority to address gender inequality in Canadian society and promoting the economic success of women. The government has indicated that the Budget measures have gone through a gender-based analysis with the goal of allocating government resources more equitably and efficiently. The Budget includes measures such as a new Women Entrepreneurship Strategy designed to increase the number of businesses owned by women and an enhanced parental leave Employment Insurance benefit for the second parent.
There is significant concern in the Canadian business community that the renegotiation of NAFTA and the reduction of U.S. corporate tax rates as part of U.S. Tax Reform may have a negative impact on Canadian business competiveness. There was very little acknowledgement of these concerns in the Budget with the government only indicating that it will monitor the impact of the U.S. tax reforms on Canada. The budget did contain new funding to support innovation in Canada with $2.6 billion to be spent over five years to transform Canada’s innovation programs. No changes were announced to the Scientific Research and Experimental Development tax credit program.
3. Private Company Taxation
The government introduced rules intended to limit the ability to build a passive investment portfolio owned by a private corporation. The rules announced are a significant improvement over the original proposals released in July 2017 and the revised proposals in October 2017. The small business deduction will be reduced by $5 for every $1 of investment income above the new annual $50,000 investment income limit and will be eliminated when annual investment income is $150,000 or higher.
If you wish to read BDO Canada's full report of the 2018 Federal Budget for additional information, please click the image below: