The 2017 Federal Budget was fairly low profile, and largely un-noteworthy.

The 2017 BC Liberal Budget died on the legislative floor as a result of the election, and we can only await the drama to play out. No doubt…Mr Trump is relieved that British Columbians have something else to entertain them!


     PROFESSIONAL SERVICES

A narrow collection of self-employed Professionals (specifically, accountants, lawyers, dentists, doctors, chiropractors and veterinarians) long have been able to report revenue on a billed-basis, as opposed to accrual. This method of recognizing revenue historically has failed to acknowledge the fundamental accounting concept of “matching” revenue to related expense, because the Practitioner expenses any staff wages paid, but not yet billed, at year-end.

For year-ends after 2018, the lower of cost and fair market value of unbilled time must be included in revenue. In transition, no change is required in 2017, and only 50% of this value must be included in 2018. This applies to year ends which commence after Budget Day.

The devil is in the details here…as the issue arises whether unbilled time of the owner/practitioner(s) should be included in the calculation.


TAX CREDITS

The Liberals have continued their minor assault on the Conservative’s proliferation of tiny tax credits….on the chopping block…..

  • Public transit credit-closed after June 30, 2017
  • First-time charitable donor super-credit- closed after 2017
  • Infirm dependent, caregiver and family caregiver credits consolidating into one credit, effective for 2017 and beyond
  • The uncommon deduction for low interest employee loans related to job relocation will be axed after 2017

OIL & GAS INVESTORS

For many years, Canadian exploration expense has qualified for an investor flow-through deduction at 100% in the year incurred. Starting in 2019 (and with some transitional exceptions) most of such costs now will be reclassified as development expense and instead be written off more slowly at 30% declining balance.

Previously, small oil and gas exploration companies had a special privilege to treat $1M annually as exploration expense, even though it actually was development. That privilege will be removed after 2018, as well (and also with some transitional exceptions).


The Liberals have adopted an approach of “soft” budgets… areas where they are telegraphing future intents…which they apparently are aiming at certain perceived benefits to entrepreneurs and their private companies. That said, a past government telegraphed reform intent in the area of interest deductibility which has remained in the shadows for decades.


OCTOBER MINI BUDGET

WORKING INCOME TAX BENEFIT
This benefit applies to low-income individuals/families, with incomes not exceeding $18,792/$28,975 respectively. New, higher CPP premiums will kick in starting 2019. A new formula also will kick in that year which, effectively, rebates back the higher CPP cost to these low-income tax payers.

CANADA CHILD BENEFIT
The maximum payout levels will rise by 1.5% for 2018 and 2019, with a promise of another 2% increase afterthat. This is really only a logical inflation increment that follows automatically with most other aspects of our federal system.

SMALL BUSINESS TAX RATE
The active business federal tax rate for small business will drop from 10.5% to 10% effective January 1, 2018 and to 9% on January 1, 2019.
The corresponding ineligible dividend tax credit system will adjust each time as follows:

 January 1  2018  2019
 Gross-up  16%  15%
 Tax Credit  10.031%  9.030%

 

CANADA PENSION PLAN
The Feds have announced a significant overhaul of our CPP system. The system extant potentially provides a CPP pension of 25% of the prescribed “maximum pensionable earnings” (YMPE”). Currently, that means a pension of $13,110 on that YMPE income of $54,900. Interestingly, the government statistic is that the average CPP paid to new claimants aged 65 was only 60% of the YMPE, meaning they had accumulated earnings over the years at only 60% of the annual ceiling.
The new plan will commence in 2019 and target a replacement pension of one third of YMPE, not the present one quarter, with a resulting $7,000 pa CPP increase above the present $13,110. The catch is that all of the CPP paid out ultimately must be funded by what is collected in CPP premiums whilst working. This increase will be funded in two new ways:
First, the CPP rate will be increased annually from 2019-2023. The present rate is 4.95%, and will rise over the five years to 5.95% in 2023, costing employees an extra $678 in that year.
Second, a new component will be added from 2024. Higher salaried people will contribute CPP at the 5.95% on the YMPE, as usual, but also pay 4% on the difference to a new, higher limit, called “projected upper earnings limit”. For 2024 and 2025, that amount will be 7% and 14%, respectively, higher than the YMPE. This will cost higher salaried people an extra $408 (plus $725 on the higher YMPE rate) in 2025.
Of course, employers must pick up their matching share of these CPP increases. In 2025, this would be an extra $1,133 for each employee earning more than approx. $82,700.