Federal Minister of Finance Joe Oliver tabled Economic Action Plan 2015 (Budget 2015–16) on April 21, 2015. The Canadian government’s balanced budget proposes a low-tax plan for jobs, growth and security, and projects a surplus of $1.4 billion in 2015–16. There are no individual tax rate or tax bracket changes in this budget. Highlights of the budget of interest to employers and payroll specialists include the following.
Modernizing the Canada Labour Code
Budget 2015 proposes to introduce amendments to the Canada Labour Code (CLC), which applies to federally regulated employers. These amendments would:
- Add protections for paid and unpaid interns, including clarifying the circumstances under which employers may offer unpaid internships and ensuring interns receive occupational health and safety protections and are subject to basic safety standards
- Provide new short-term and long-term unpaid leaves for family responsibilities and increased bereavement leave
- Address violence and sexual harassment in federally regulated workplaces, to ensure that employees are treated fairly and protected from harm
The budget also calls for increasing the number of occupational health and safety officers from 90 to 100 at an additional cost of $4.8 million over five years.
The government also says it will modernize the Act governing benefits and services to federal employees suffering from work-related injuries and illnesses to accelerate claims and clarify what’s covered.
Proposed overhaul of sick leave
The government wants to get rid of the system whereby public sector employees can bank sick days, instead providing them access to short-term disability benefits previously unavailable.
Extending compassionate EI benefits
Effective January 1, 2016, the budget proposes to extend Employment Insurance (EI) Compassionate Care Benefits from six weeks to six months to better support Canadians caring for gravely ill and dying family members. However, the number of weeks allotted by provincial and territorial governments has not changed because of this measure. Most provincial/territorial government only allow eight weeks of unpaid leave.
TFSA annual contribution limit increasing
The Tax-Free Savings Account (TFSA) annual contribution limit will increase from $5,500 to $10,000, effective for 2015 and subsequent years. The annual TFSA contribution limit will no longer be indexed to inflation. Any unused contribution room may be carried forward for use in subsequent years.
Employment Insurance system
Commencing in 2017, the government will implement the seven-year break-even Employment Insurance premium rate-setting mechanism, which will ensure that EI premiums are no higher than needed to pay for the EI program over time. Under the proposal, any cumulative surplus recorded in the EI Operating Account will be returned to employers and employees through lower EI premium rates once the new mechanism takes effect. Based on current estimates, it is expected to result in a reduction in the EI premium rate, from $1.88 in 2016 to $1.49 in 2017. The budget shows the EI account will be in surplus in 2015–16 and that surplus will grow to $5.5 billion the following year.
Budget 2015 proposes to extend the current EI Working While on Claim pilot project to August 2016. Under this pilot, claimants can keep 50 percent of their EI benefits for every dollar they earn, up to a maximum of 90 percent of the weekly insurable earnings used to calculate their EI benefit amount.
Quarterly remittance for tax withholdings
The government proposes to decrease the required frequency of remittances for new small employers by allowing eligible employers to immediately remit on a quarterly basis. Eligible employers will be new employers with withholdings of less than $1,000 each month. Ongoing eligibility for quarterly remitting will require that the employer maintain a perfect compliance record. Employers will continue to be eligible for quarterly remitting under this measure, if their required monthly withholding amount remains under $1,000. If withholdings rise above this level, the CRA will classify an employer as a more frequent remitter in accordance with the existing remittance rules. This measure will apply to withholding obligations that arise after 2015.
Withholding for non-resident employers
Non-residents are subject to tax in Canada under the Income Tax Act (ITA) on employment income earned in Canada. Provided certain conditions are met, employment income earned in Canada by a non-resident may be exempt from Canadian tax under a tax treaty between Canada and the country of residence of the non-resident employee.
Budget 2015 proposes to provide an exception to the withholding requirements for payments by qualifying non-resident employers to qualifying non-resident employees. In the absence of a waiver issued by the Canada Revenue Agency (CRA), an employer (including a non-resident employer) is generally required to withhold and remit Canadian tax on account of the employee’s potential Canadian tax liability even if the employee is exempt from Canadian tax because of a tax treaty between Canada and the employee’s country of residence.
An employee will be a qualifying non-resident employee if the employee (i) is exempt from Canadian tax in respect of the payment because of a tax treaty between Canada and the country of residence of the employee; and (ii) is not present in Canada for 90 days or more in any 12-month period that includes the time of payment. An employer will be a qualifying non-resident employer if the employer (i) is resident in a country with which Canada has a tax treaty; (ii) does not carry on business in Canada through a permanent establishment; and (iii) is certified by the Minister of National Revenue at the time of the payment.
Special rules apply where the employer is a partnership. The qualifying non-resident employer will continue to be required to comply with the reporting requirements under the ITA with respect to the payments.
Matching education with job skills needed by employers
Starting in 2016–17, the government plans to make a one-time investment of $65 million over four years to business and industry associations to allow them to work with willing post-secondary institutions to better align curricula with the needs of employers.
Adjustment in the registered retirement income fund (RRIF)
Budget 2015 proposes to decrease the required annual minimum withdrawals so they are more in line with long-term investment returns and expected rates of inflation. These changes are proposed to be effective for 2015 and subsequent years, with re-contributions permitted for those who, in 2015, withdraw more than the proposed new minimum.
The existing RRIF factors have been in place since 1992. Under the proposed changes, a senior would be required to withdraw 5.28 percent of his or her RRIF at age 71, down from 7.38 percent today. At age 94, a senior would be required to withdraw 18.79 percent, down from 20 percent currently. At age 95 and above, the percentage that seniors are required to withdraw annually would remain capped at 20 percent. There will be no change to the minimum withdrawal factors that apply in respect of ages 70 and under, which will continue to be determined by the formula 1/(90 – age).
Manufacturers have an incentive to invest in new manufacturing and processing equipment over the next decade through an accelerated capital cost allowance (CCA) deduction. Budget 2015 proposes new capital cost allowance Class 53 to provide an accelerated CCA rate of 50 percent on a declining-balance basis for machinery and equipment acquired by a taxpayer after 2015 and before 2026 primarily for use in Canada for the manufacturing and processing of goods for sale or lease. Eligible assets are those that would currently be included in Class 29 (with a CCA rate of 50 percent on a straight-line basis).
The Budget confirms a proposed change announced on December 23, 2014, to the limit on the deduction of tax-exempt allowances paid by employers to employees that use their personal vehicle for business purposes.
Corporate tax rate
The Budget also proposes to reduce the small business tax rate from 11 percent to 9 percent by 2019. This two-percentage-point reduction will be phased in as follows:
- 10.5 percent effective January 1, 2016
- 10 percent effective January 1, 2017
- 9.5 percent effective January 1, 2018
- 9 percent effective January 1, 2019
The reduction in the small business rate will be pro-rated for corporations with taxation years that do not coincide with the calendar year.
Repeated failure to report income
The Budget proposes for 2015 and subsequent taxation years to amend the penalty for repeated failure to report income. The penalty would apply only if a taxpayer fails to report at least $500 of income in the current year and any of the three preceding years. In addition, the proposal would limit the amount of the penalty to the lesser of:
- 10 percent of the unreported income, and
- An amount equal to 50 percent of the difference between the understatement of tax relating to the omission and the amount of any tax paid in respect of the unreported amount.
Sharing of information
The government has undertaken as part of an OECD/G-20 process to provide for the automatic exchange with other countries of tax information respecting financial accounts. This exchange of information will be reciprocal and bilateral, and will occur on the basis of a common reporting standard. Budget 2015 contains important details regarding the manner in which the government envisages implementing the information-sharing program.
The OECD common reporting standard involves rules governing the exchange of information on non-resident account holders of accounts among Canadian financial institutions and tax authorities of a number of participating countries. Financial institutions in Canada will be required to identify any such accounts held by non-residents of Canada and report certain related information to the CRA. The common reporting standard will be effective July 1, 2017, with exchange of information starting in 2018. Accounts held by Canadian residents who are also citizens of foreign countries will not be reportable. Furthermore, safeguards will be put in place to protect taxpayer confidentiality and to restrict the use of information sent to foreign tax authorities to tax purposes only. Draft legislation giving effect to this budgetary proposal will be released in the coming months.
In addition, Budget 2015 proposes to amend the ITA to permit the sharing of taxpayer information within the CRA for purposes of collecting non-tax debts owing under certain federal and provincial laws. Similar measures will be introduced to the Excise Tax Act in relation to the Goods and Services Tax/Harmonized Sales Tax (GST/HST) and also to the Excise Act, 2001 in relation to certain excise duties. The new measure will apply on royal assent to the enacting legislation.
Finally, the Budget proposes to give the Minister of Employment and Social Development Canada and the Minister of Labour the authority to collect, use and verify Business Numbers to administer programs for which they are responsible. Using the business number, an organization dealing with the federal government would only have to register once to be eligible to access a range of federal programs and services for organizations, instead of having to register separately under each federal service or program.