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Budget 2017 – Updates Relevant to our Clients

As we predicted last week, the capital gains inclusion rate remains unchanged, this is a relief for a lot of our clients. Personal and corporate tax rates also remain unchanged. There was speculation that there may have been changes to stock option deductions, which also remains status quo.

The budget proposes to “crack down” on some common tax planning techniques as they relate to private businesses. These include dividend sprinkling arrangements and capital gains remuneration techniques. How the government attacks these planning arrangements remains to seen. We will be connecting with you as soon as the government releases the consultation paper to ensure we navigate through these new rules effectively.

There is significant change as to how work-in-progress (WIP) is treated for tax purposes.

This will have an impact on our professional clients, such as lawyers. At present, WIP of a corporation at the end of its fiscal year is essentially not taxed. The budget proposes to change this to make WIP taxable even though it may not be billed for some time–this could put a cash crunch on some businesses. We will work closely with our clients to see what changes are needed to their accounting systems to ensure the impact of this is minimized.

Changes to the oil and gas sector – another blow to our energy clients.

The budget narrows the scope of expenses that fall under Canadian exploration expenses (CEE). CEE are fully deductible in the year incurred. In previous years, all expenses incurred to explore and drill a potential reserve of oil or gas were considered CEE. Starting in 2019, all expenses incurred around drilling an exploratory well will no longer classify as CEE and will instead be treated as Canadian development expenses (CDE). CDE expenses are limited to a 30% declining balance deduction. Expenses incurred prior to drilling, for example seismic and geophysical work, will be eligible for the preferential CEE tax treatment.

Overall this highly anticipated budget was fairly tameWe suspect the fall update will have more meat to it. 

What to do next?

If you have any questions on how these updates will affect your business, please drop us a line:  //  587.320.3940

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