The 2019 budget proposes a number of changes that will focus on providing relief to businesses in specific industries including journalism, research and development, film and video production, farming and fishing businesses, as well as new Capital Cost Allowance rules for businesses using zero-emission vehicles.
In addition, the government proposes rules to prevent businesses from circumventing current character conversion transaction rules to gain a tax advantage.
Scientific Research & Experimental Development (SR&ED)
The 2019 Federal budget proposes to eliminate the taxable income erosion on the enhanced SR&ED federal tax credit.
Currently, the SR&ED expenditure limit of $3,000,000, and in turn the 35% enhanced tax credit, is currently eroded for every dollar of taxable income in excess of $500,000 at a rate $10. If taxable income exceeds $800,000 the limit is reduced to 0 and no enhanced credit is received.
Qualified Donee Status for Canadian Journalism Organizations
Starting in January 2020, Qualified Canadian Journalism Organizations (QCJOs) will be allowed to register as qualified donees, receiving tax exempt status and the ability to issue charitable receipts. Requirements will have to be met to maintain status.
Refundable Labour Tax Credit for Newsroom Employees
Effective January 1, 2019, eligible QCJOs will be able to claim a non-refundable tax credit on amounts paid to eligible newsroom employees at a rate of 25% on up to $55,000 per employee.
Canadian Film or Video Production Tax Credit
Joint Canada/Belgium production will now qualify for the 25% refundable Canadian Film or Video Production Tax Credit as of March 12, 2018.
Relief to Farming and Fishing Businesses
Currently, corporate income is taxed at a corporate rate of 15%. However, Canadian Controlled Private Corporations are entitled to the small business federal tax rate of 9% on up to $500,000 of income from active Canadian business, subject to rules and restrictions.
The budget proposes to adjust one such restriction placed on Specified Corporate Income, allowing farming and fishing businesses to claim the Small Business Deduction on taxable income from sales made to arm’s length purchase corporations and not just that which is derived from sales to farming or fishing cooperative corporations.
CCA rate of 100% for Zero-Emission Vehicles
The budget proposes a first-year Capital Cost Allowance rate of 100% for eligible zero-emission vehicles purchased after March 19, 2019 and put into use before 2028. These vehicles will be classified under two new CCA classes:
- Class 54 includes zero-emission vehicles usually included in class 10 or 10.1. Maximum amount of $55,000 plus tax per vehicle.
- Class 55 includes vehicles normally included in Class 16.
The budget also proposes to amend GST/HST rules to reflect these changes.
Additional Character Conversion Transaction Rules
In 2013 the federal government introduced character conversion transaction rules to eliminate the tax advantages gained from using derivative contracts to convert regular income into capital gains, which are taxed at a substantially lower rate (half that of regular income as only 50% of capital gains are taxable), with exceptions for some commercial transactions.
Since then, an alternative character conversion transaction was developed by the mutual fund industry which uses the commercial transactions exception to circumvent the intent of the 2013 rules.
In response, the 2019 budget proposes changes to the definitions laid out in the Income Tax Act to ensure these new character conversion transactions recognize proceeds of disposition as regular income and not capital gains in situations where the main purpose was to misuse the commercial transactions exception.
For more information on proposed changes for businesses in the 2019 Federal Budget and how they could affect you, contact us today.
