Canada Tax Changes for 2017: What Individuals and Businesses Should Know
As the calendar turns, Canadians will see a number of federal and provincial tax changes taking effect that will influence household budgets, business transactions and investment strategies. Below is a concise, practical summary of the most important federal and provincial measures for 2017 and what they mean for taxpayers across the country.
Federal changes: credits removed and rules tightened
The federal government has eliminated several tax credits that previously benefited families. Starting in 2017, the child-related credits for arts, fitness, education and textbooks are no longer available. In addition, income splitting — a measure that allowed parents with a child under 18 to transfer up to $50,000 of income to a lower-income spouse and receive a tax credit capped at $2,000 — has been cancelled.
These cutbacks are offset in part by support programs introduced earlier, including the Canada Child Benefit and Employment Insurance reforms enacted in 2016. According to Aaron Wudrick, federal director of the Canadian Taxpayers Federation, while higher-income earners in many provinces will face higher taxes, “for the majority of Canadians, these two changes will mean more money in their pockets.”
Life insurance, business sales and mutual funds
Several technical but significant changes also take effect at the federal level. New universal life insurance policies will face less favourable tax treatment than before. The revised calculation reduces the ability of policyholders to accumulate investment gains above death benefit premiums on a tax-free basis, which may make some policies slightly more costly or reduce death benefit amounts.
Owners selling businesses should note that certain asset classes, such as goodwill and trademarks, will be treated more like regular investment income. Previously, a portion of sale proceeds could be distributed in ways that received favourable tax treatment; under the new approach, those amounts will be fully taxable in many cases, reducing the after-tax benefit of a sale.
Investors holding non-registered mutual funds structured as corporate “switch funds” will also see changes. Rebalancing into equities from these structures will no longer be eligible for tax-deferred treatment; capital gains arising from such moves will be taxed in the same way as equity transactions.
Provincial changes: a patchwork of adjustments
Provinces have introduced a variety of targeted measures for 2017. Newfoundland and Labrador, facing budget pressures, is the only province increasing income tax rates across all brackets this year. Those earning roughly between $35,000 and $70,300 will see their rate rise to 14.5 per cent — an increase from earlier this year and from 2015 — and the province is also raising fees for access to provincial parks and campsites.
Quebec will eliminate the controversial health premiums two years earlier than planned. Ontario is offering an eight-per-cent rebate aimed at offsetting rising electricity costs and is capping the maximum cost of payday loans at $18 per $100 borrowed (down from $21 per $100). The province is also doubling the first-time homebuyer land transfer tax refund to $4,000 and moving forward with a carbon cap-and-trade system.
British Columbia has removed Medical Services Plan premiums for children and students, easing costs for families with school-aged dependents. Alberta is cutting its small business corporate income tax rate from three per cent to two per cent and introducing a carbon levy on fossil fuels, while offering credits or rebates to offset impacts on low- and middle-income households.
What taxpayers should expect
Most of the major changes announced in 2016 have already been implemented by the federal and provincial governments. “There are a few changes that are unique for 2017 but the average Canadian is not going to see much difference between 2016 and 2017,” said Jamie Golombek, managing director of tax and estate planning at CIBC Wealth Advisory Services.
Tax professionals caution that additional changes remain possible. Jason Safar of PricewaterhouseCoopers noted that further credits could be eliminated and that international developments — including potential tax policy shifts in the United States — may influence future Canadian tax decisions. “Given the promise of lower tax rates in the U.S., it is reasonable to ask what will happen with Canadian tax rates,” he said.
Finally, several indexed tax amounts will be adjusted upward for inflation in 2017. These include maximum contribution limits for registered plans and many credit thresholds. One notable constant is that the annual contribution limit for Tax-Free Savings Accounts remains at $5,500 for 2017.
This overview highlights the main federal and provincial tax changes for 2017 that will affect families, small businesses and investors. Taxpayers with questions about how these changes apply to their personal situations should consult a qualified tax advisor or their provincial revenue office.