Federal Budget 2018

Feb 27th 2018, Mr. Trudeau's Liberal government tabled its third budget.

03.05.2018 - David Cieslowski, Vice President, Private Wealth Counselor

Federal Budget 2018

Feb 27th 2018, Mr. Trudeau's Liberal government tabled its third budget. Similar to last year, while there were many significant spending initiatives, there were no measures impacting the taxation of individuals. In fact, tax rates for both individuals and corporations remain unchanged.

Minister of Finance, Mr. Morneau, opened his remarks indicating his numerous spending initiatives---$21.5B in new spending over the next 5 years---are directed towards women in the workforce, Indigenous people and families; and will affect childcare, foreign aid, as well as a new Pharmacare program and EI Parental leave program. The federal budget deficit is projected to be $18.1B in the 2018-19 fiscal year, and is expected to decline to $12.3B by 2022-2023.

Highlights in the 2018 Budget include:

Taxation of Business Corporations: There was generally good news for private business owners, as the government retreated on some of the complicated tax measures they discussed throughout 2017, while providing some clarity and simplification regarding the impact of holding passive investments within a private corporation through two measures:

Clawback of Small Business Deduction Tax Rate: Qualifying small businesses are currently able to benefit from a reduced tax rate on the first $500,000 of active business income. The budget proposes to penalize businesses by eliminating the small business deduction limit when passive income exceeds $150,000 in a given year. The annual $500,000 deduction limit will be reduced by $5 for each $1 of passive investment income in excess of $50,000.

Limiting Access to Refundable Taxes: Private businesses are entitled to a refund of a portion of the taxes paid on investment income when a taxable dividend is paid to shareholders; as tracked in the refundable dividend tax on hand (RDTOH) account. The budget proposes to limit this benefit by changing the RDTOH eligibility and accounting. This will be accomplished by introducing a new “Eligible” RDTOH account related to eligible portfolio dividends, while the existing RDTOH account will become the “non-eligible” RDTOH account and track non-eligible dividends as well as other investment income and taxable capital gains. We suggest that you speak to your tax advisor to gain a proper understanding of how this could affect you and your corporation.

Employment Insurance (EI) Parental Sharing Benefit: Fathers, non-birth and adoptive parents, as well as same sex partners are now given an additional 5 weeks of parental leave to encourage both parents to share equally in the work of raising their children.

Please don’t hesitate to contact your portfolio manager if you have any questions.


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