Budget 2016

Income tax policy, rules, problems, strategy and software. Property and consumption taxes too.
brucecohen
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Budget 2016

Post by brucecohen »

Just did a very quick skim of the budget book. Saw no major tax changes of interest to people here except overhauls of tax breaks for children and increase in aid to post-sec students. More aid to veterans

-- As previously announced, plan to boost OAS and GIS ages is dead
-- GIS payments are being increased and there's money for GIS recipients forced to live aspart, for example due to need for long-term care
-- Govt will waste spend money having StatCan develop a seniors CPI index. StatCan has already researched this and found no significant difference in growth rate for aggregate seniors spending versus aggregate general population spending
-- Tightening of gaming available to owners of private corporations
-- Will kill the federal tax credit for labour-sponsored investment funds. I thought that was already in the works
-- "Prevent the deferral of capital gains tax by investors in mutual fund
corporations structured as switch funds;
" Not sure what this means -- no background explanation given. Maybe they're ending ability of corporate class fund investors to switch among funds under the same umbrella without triggering cap gain. Yes, they're ending that.

There's no doubt more but that's what a quick skim turned up. Despite speculation no change in cap gains inclusion rate.

At 271 pages, this book is shorter than ones in previous year and, lacks explanatory details I had expected. There might be another book with more detail.

Yes, there is more. If you click on the glossy Budget 2016 pdf download button you get just the first 271 pages. If you root around a bit on the Finance website you find links to all the supporting sections. Tax measure table of contents
Last edited by brucecohen on 22 Mar 2016 17:02, edited 1 time in total.
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Re: Budget 2016

Post by planB »

For budget highlights, a summary from KPMG.
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Shakespeare
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Re: Budget 2016

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From KPMG:
The budget notes that many mutual fund corporations are organized as “switch funds”. The
budget proposes amendments so that an exchange of shares of a mutual fund corporation
(or investment corporation) that results in the investor switching between funds
will be
considered to be a disposition at fair market value for tax purposes. This is to ensure the
appropriate recognition of capital gains. Currently, this type of exchange of convertible
corporate securities is deemed not to be a disposition for income
tax purposes.

The measure will not apply to switches where the shares received in exchange differ only in
respect of management fees or expenses to be borne by investors and otherwise derive
their value from the same portfolio or fund within the mutual fu
nd corporation (e.g. the
switch is between different series of shares within the same class).
This measure will apply to dispositions of shares that occur after September 2016.
ISTM that these funds were explicitly designed to avoid CGs, and thus may now have no purpose.
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Re: Budget 2016

Post by brucecohen »

Shakespeare wrote: ISTM that these funds were explicitly designed to avoid CGs, and thus may now have no purpose.
These funds have also been able to minimize or avoid taxable distributions by internally shifting portfolio income and trading gains among funds in the same family. The budget doesn't appear to address that, but I don't know how valuable that really is. Dan Hallett will no doubt have an informed comment on it. Added: As I think about it, the budget makes clear that Finance wants these funds treated the same as mutfund trusts. So even if the distribution management capability is retained, it's only a matter of time before it too will be killed if fundcos and advisors promote it actively.
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Re: Budget 2016

Post by OptsyEagle »

brucecohen wrote:
Shakespeare wrote: ISTM that these funds were explicitly designed to avoid CGs, and thus may now have no purpose.
These funds have also been able to minimize or avoid taxable distributions by internally shifting portfolio income and trading gains among funds in the same family. The budget doesn't appear to address that, but I don't know how valuable that really is. Dan Hallett will no doubt have an informed comment on it. Added: As I think about it, the budget makes clear that Finance wants these funds treated the same as mutfund trusts. So even if the distribution management capability is retained, it's only a matter of time before it too will be killed if fundcos and advisors promote it actively.
It had quite a big benefit. Remember, all fund companies have their "dogs". These are the funds that were brought out during a market mania, usually somewhere at the top. Here we have the Japanese funds in 1989, the tech funds in 1999, and a slew of precious metal funds a few years ago, as just a few examples. When the dust settles and the investors have redeemed what is left of their losing investment and moved on to some other fund that is about to go down, that old fund is left with what amounts to a really big juicy and valuable accounting credit of capital losses. These mutual fund companies will quite often merge those funds into their corporate class structure and then deduct them against whatever fund is realizing a capital gain, in any given year. This then ensures that the investor does not receive the big whopping capital gain distribution. By the time they use up all those capital losses, another mania will have passed by and they just merge another dog into this structure. It works quite well.

Corporate class funds use to be even sweeter before the Tories left office. Back then these funds could take their bond funds or money market funds, etc., and buy a forward contract with a bank, equal to the return on the bond fund. This ensured the investor that all the interest income would end up as capital gains. Then they took the tax losses above and got rid of those. So instead of an investor in a bond fund getting a few percentage points of return as an interest income dividend and losing sometimes half of it to taxation, they got the same return and lost nothing to taxation. Anyway, this part of buying a forward contract got kiboshed by the government a little while ago, but the merging of tax losses should still be available. At least I have not heard anything on that scam.
Last edited by OptsyEagle on 22 Mar 2016 22:37, edited 1 time in total.
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Re: Budget 2016

Post by Insomniac »

Never heard of "switch funds" before this. I guess what you don't know won't hurt ya...

Happy to see capital gains inclusion rate unchanged.
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Re: Budget 2016

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Insomniac wrote:Happy to see capital gains inclusion rate unchanged.
:thumbsup:
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Re: Budget 2016

Post by bpither »

Happy to see capital gains inclusion rate unchanged.
And the dividend income tax credit remains unchanged ...
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Re: Budget 2016

Post by Descartes »

Wow, more bad news:

Bad for people in university or who have kids in university ..
eliminate the education and textbook tax credits

Bad for people with kids..
phase out the children’s fitness and arts tax credits by reducing the 2016 maximum eligible amounts to $500 from $1,000

In addition to the badness I already knew of:

Bad for people with high income..
The introduction of a 33-per-cent personal income tax rate on individual taxable income in excess of $200,000, effective for the 2016

Bad for people with kids and high income..
Where adjusted family net income exceeds $65,000, remaining benefits will be phased out at rates of 3.2 per cent for a one-child family, 5.7 per cent for a two-child family, 8 per cent for a three-child family and 9.5 per cent for larger families, on the portion of income above $65,000.

Bad for people who benefited from the family tax cut..
eliminate the income splitting tax credit for couples with at least one child under the age of 18 for the 2016 and subsequent taxation years


Best way to make Canada great: cannibalize the rich
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Re: Budget 2016

Post by AltaRed »

Ah, but is there anything in there for restrictions on use of CCPC's? The scuttlebutt pre-budget was along the lines of needing at least 3 arms length employees to get value from CCPC....not that I am against putting the squeeze on those who used it primarily for income splitting.
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Re: Budget 2016

Post by ghariton »

Largely a non-event on the tax side.

I still have to digest the expenditures side.

$30 billion is not a large deficit in the order of things. But it has to be considered in conjunction with provincial deficits. Over all, though, mot bad at all.

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Re: Budget 2016

Post by fundy48 »

Descartes wrote:Wow, more bad news:

Bad for people in university or who have kids in university ..
eliminate the education and textbook tax credits

.......
from Globeandmail.
The Canada Student Grant, for young people from low-income families, will grow to $3,000 a year from $2,000 for the 2016-17 academic year; students from middle class families will see the grant rise to $1,200 from $800.
So loss of education textbook amount 15% of $465 equals ~$70 a month for 8 months of year offset by CS Grant increase of $400 to $1,000. Somewhat of a trade off or a bit of a wash. Fewer lines for the students to fill out on their tax return.
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Re: Budget 2016

Post by Taggart »

My wife and I are just lower middle class who through most of our lives have never carried any debt, who have always lived within our means, and we're not looking for anything positive in this budget and nor are we getting anything from it, which is fine, but all I can see is this humongous deficit staring at us with no thoughts at all on paying it off and to start paying down the debt. Most Canadians seem to want to spend what we don't have and it's not a future problem?
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Re: Budget 2016

Post by kcowan »

brucecohen wrote:-- "Prevent the deferral of capital gains tax by investors in mutual fund
corporations structured as switch funds;
" Not sure what this means -- no background explanation given. Maybe they're ending ability of corporate class fund investors to switch among funds under the same umbrella without triggering cap gain. Yes, they're ending that.
Well that will enable many investors to break free from the over-priced funds in the first place. That has to have a positive impact long term?
For the fun of it...Keith
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Descartes
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Re: Budget 2016

Post by Descartes »

fundy48 wrote:
Descartes wrote:Wow, more bad news:

Bad for people in university or who have kids in university ..
eliminate the education and textbook tax credits

.......
from Globeandmail.
The Canada Student Grant, for young people from low-income families, will grow to $3,000 a year from $2,000 for the 2016-17 academic year; students from middle class families will see the grant rise to $1,200 from $800.
So loss of education textbook amount 15% of $465 equals ~$70 a month for 8 months of year offset by CS Grant increase of $400 to $1,000. Somewhat of a trade off or a bit of a wash. Fewer lines for the students to fill out on their tax return.
Yes, well we naturally view everything first from our own perspective.
As I said earlier in summary: this is about cannibalizing the higher income people.
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Re: Budget 2016

Post by StuBee »

I appear to be a net loser here...

Canada Student Grants do not apply to me for 2 reasons: #1 They are not available for PQ residents (because we have our own program) and #2 up until now we would have been considered to have income in excess of the eligibility criteria.

Furthermore, we lose the education and textbook credit!!! This measure was not income dependant and was worth (to us) 2 students multiplied by (400$ + 65$) multiplied by 8 months multiplied by 15% which equals...1116$!!! of tax credits lost.

What I find intriguing (and on the surface unfair) is that the removal of the Education/textbook credit goes hand in hand with an increase in the Canada Student Grant yet no PQ residents are even eligible for the CSG...(even though we PQ residents do get dinged with the loss of the tax credit...)
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Re: Budget 2016

Post by fundy48 »

StuBee wrote:I appear to be a net loser here...

What I find intriguing (and on the surface unfair) is that the removal of the Education/textbook credit goes hand in hand with an increase in the Canada Student Grant yet no PQ residents are even eligible for the CSG...(even though we PQ residents do get dinged with the loss of the tax credit...)
On the other hand, I have always found it unfair that most-to all universities outside of Quebec charge the same tuition to Canadian students regardless of province of residence. Quebec always has a low rate of tuition for Quebec residents.
Since our daughter went to McGill, checked the tuition rates for a science degree. $2293 for a Quebec resident, but a non-Quebec Canadian resident pays $7090. I think that $4800 gift to Quebec students more than compensates for the $1200 to $3,000 Canada Grant.
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Re: Budget 2016

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Taggart wrote: Most Canadians seem to want to spend what we don't have and it's not a future problem?
Remember we get the elected government that reflects the majority (sort of). Most Canadians are awash in personal debt, mortgage debt and god knows what other kinds of debt (moral ?... :twisted: ) and live for the moment and spare no thought for their own future or future generations.

Therefore they elect a government which reflects their "values" and spends money like they do. A government elected by such people does not (nor should it) have any different attitude than the people that support it.

Leadership and restraint ? Don't be naive ... :roll:
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Re: Budget 2016

Post by Shakespeare »

Could we keep the cracks in the Watercooler, please?
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
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Re: Budget 2016

Post by izzy »

AltaRed wrote:Ah, but is there anything in there for restrictions on use of CCPC's? The scuttlebutt pre-budget was along the lines of needing at least 3 arms length employees to get value from CCPC....not that I am against putting the squeeze on those who used it primarily for income splitting.
From Ernst and Young
Private company insights: federal budget 2016
http://www.ey.com/Publication/vwLUAsset ... 16No15.pdf

Small
-business deduction limits
Budget 2016 proposes to limit access to the small-
business deduction under certain corporate and
partnership structures that multiply the number of small
-business deduction limits within a group. These
measures will apply to taxation years beginning on or after 22 March 2016.

I'm no lawyer or accountant so I defer to those members who are but
Depending how THIS is interpreted might there not be problems for groups of Lawyers and Physicians who share premises ,secretarial help and other expenses and for Physicians who share on call responsibilities,(especially in rural practice )as it might be interpreted to expand the definition of associated corporations ?
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Re: Budget 2016

Post by Bylo Selhi »

Shakespeare wrote:Could we keep the cracks in the Watercooler, please?
:thumbsup:
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Re: Budget 2016

Post by Koogie »

Shakespeare wrote:Could we keep the cracks in the Watercooler, please?
As you request. Interesting how free for all criticism of the previous administration was the norm around here but since the regime change...
progressive.
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Re: Budget 2016

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A reminder that politics are not permitted in the Money forums. Stay on topic.
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Re: Budget 2016

Post by Spidey »

I think I could have accepted a 10 billion deficit mostly directed to infrastructure spending. There is a certain rationale to borrowing for these projects at low rates. A 30 billion deficit with no apparent plan to balance the budget is somewhat worrisome. Definitely not a Chretien-Martin style budget.
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Re: Budget 2016

Post by Flaccidsteele »

Spidey wrote:I think I could have accepted a 10 billion deficit mostly directed to infrastructure spending.
I don't even know what 'infrastructure spending' means. Different opinion writers have made it out to mean different things.
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