Archive for the ‘budget’ Category

Budget 2019: Highlights for Businesses

Federal Finance Minister Bill Morneau’s election year budget, tabled on March 19th, 2019, forecasted a deficit of $19.8B for fiscal 2019, with deficits projected to decline gradually to $9.8B by 2023.

No additional measures were proposed to provide business tax reductions, or to address the 2018 Fall Economic Statement announcements regarding an Accelerated Investment Incentive or the immediate write-off of manufacturing/processing and clean energy machinery and equipment in response to the recent U.S. tax reform.  

The initiatives proposed in Budget 2019 are heavily focused on investments in skills and training and offer some limited benefits to Small- and Medium-Sized Enterprises (SMEs).

SR&ED Enhanced Tax Credit Rate Eligibility Amended

The Scientific Research and Experimental Development (SR&ED) Tax Incentive Program provides a  basic 15% , non-refundable credit to all businesses performing SR&ED in Canada. Eligible small and medium-sized companies can qualify for enhanced 35% refundable tax credit rate of qualifying SR&ED expenditures up to $3M per fiscal year.

Eligibility for the 35% rate is determined by a business’ level of taxable capital and income from the prior fiscal year. 

  • The taxable capital threshold is between $10M and $50M.
  • The taxable income threshold begins at $500,000 taxable income in the prior year and reduces current fiscal year eligibility for the enhanced credit on a sliding scale until $800,000 taxable income in the prior year.

Budget 2019 proposed to eliminate the income threshold to qualify for federal enhanced (refundable) SR&ED investment tax credits for taxation years beginning on or after March 19, 2019, for SMEs, in order to increase support for SMEs that are scaling up their R&D efforts or have variable income from year to year. The capital threshold will continue to apply.

The proposed changes will allow SMEs to continue to receive refundable tax credits on up to $3M in expenditures, regardless of their profitability. 

Corporate Rates and Employee Stock Option Deductions (Compared to U.S. Tax Measures)

Despite tax-payer anticipation for Canadian corporate tax rate reductions in accordance with recent U.S. tax reform, there were no proposed changes in Budget 2019 to the corporate income tax rates or to the $500,000 Small-Business Deduction Limit for Canadian-controlled private corporations (CCPCs).

Budget 2019 proposed to impose a $200,000 annual cap on employee stock option grants for employees of large, long-established, mature firms in alignment with the U.S. tax treatment. Employee stock option benefits of startups and rapidly growing Canadian businesses will remain uncapped.

Further details of this measure will be released before the summer of 2019.

Canada’s Innovation and Skills Plan is Ongoing

Canada’s Innovation and Skills Plan was launched in 2017 to help Canadian businesses start up, scale up, and become globally competitive.

  • In February 2018 the Government announced a $950M investment in five regional industry-led innovation superclusters including digital technologies, food production, advanced manufacturing, artificial intelligence in supply chain management, and ocean industries. These superclusters have assumed operation and are expected to create 50,000 jobs and add $50B to the economy over the next 10 years. 
  • The $1.2B Strategic Innovation Fund was launched in July 2017, to spur Canadian innovation by supporting the costs of direct labour, subcontractors, and consultants, as well as overhead, direct materials and equipment, land and building, and other direct costs. As of January 2019, the Fund had secured 31 investment agreements from leading researchers and manufacturers, worth a total of $8.1B, including a federal investment of $795M. Budget 2019 proposes to provide a further $100M over four years, starting in 2019–20, to the Strategic Innovation Fund (SIF).  The SIF will leverage private sector co-investments in order to support the activities of the Clean Resource Innovation Network.
  • Innovative Solutions Canada was launched in December 2017, replacing the Build in Canada Innovation Program (BCIP), to help companies bridge the technology gap between the R&D stage of projects and the pre-commercialization phase through government acquisitions. The program will dedicate over $100M annually by the end of March 2020 to support challenges issued by twenty participating federal departments and agencies to address federal government needs.
  • The first Canadian National Intellectual Property Strategy was proposed in Budget 2018. Budget 2019 announced intent to move forward with a pilot Patent Collective, to help Canadian start-ups and small and medium-sized enterprises pool together vital intellectual property assets.

Workforce Development Investments

Budget 2019 proposed investments in talent acquisition and skills training that impact businesses including: 

  • $35.2M over five years, starting in 2019, with $7.4M per year ongoing to make the Global Talent Stream a permanent program to give Canadian businesses enhanced access to top global talent. The Global Stream Talent pilot project was a part of the Global Skills Strategy that was announced in the 2016 Fall Economic Statement.
  • More than $1.7B over five years, and $586.5M per year ongoing to: (1) implement a Canada Training Benefit which will include a new, refundable Canada Training Credit (CTC) to help cover up to half of eligible tuition and fees associated with training, and (2) to implement a new Employment Insurance Training Support Benefit to provide income support when an individual requires time off work As of 2019, eligible individuals will be able to accumulate $250 annually (up to a maximum of $5,000 over a lifetime) that can be applied towards eligible expenses beginning in 2020.
  • An additional $150.0M over four years, starting in 2020, to Employment and Social Development Canada to create up to 20,000 additional work-integrated learning opportunities annually in partnership with innovative businesses.

Additional Funding Proposed in Budget 2019

  • $100M over three years (on a cash basis), starting in 2019, to Western Economic Diversification Canada to increase its programming in western Canada.
  • New Strategic Science Fund starting in 2022, which will operate under a principles-based framework for allocating federal funding for third-party science and research organizations. The Minister of Science will provide more detail on the Fund over the coming months.
  • Implementation of new Regulatory Roadmaps for reviewing and modernizing regulatory requirements and practices that impede innovation and growth in the following high-growth sectors:
    • Agri-food and aquaculture
    • Health and bio-sciences
    • Transportation/infrastructure

This includes the establishment of a regulatory sandbox for new and innovative medical products such as tissues developed through 3D printing, artificial intelligence, and gene therapies targeted to specific individuals. Further details will be released in the coming weeks.

Quebec Budget 2018 Highlights

The 2018 Quebec Budget, tabled on March 27, 2018, reports accelerated gross domestic product (GDP) growth from 1.4% in 2016 to 3% in 2017 and proposes several measures and investments that will impact businesses in Quebec including:

Innovation

  • Increasing the additional capital cost allowance rate from 35% to 60% for investments in computer equipment and manufacturing and processing equipment made after March 27, 2018.
  • Expanding tax holiday eligibility for large investment projects to include the development of digital platforms (“a computing environment that enables content management or use of a service that serves as an intermediary in accessing information, services, or property supplied or edited by the corporation or partnership, or by a third party, and which is not a tax-exempt platform”).
  • Broadening the tax credit for film and television production to include digital platforms.
  • Providing $348.7M for the implementation of a new biofood policy, including:
    • $180M to spur investment in biofood production and processing;
    • $62.8M to stimulate the development of the biofood industry; and
    • $29.7M to enhance efforts in innovation and training.
  • Committing $171.5M over 4 years to increase the appropriation and marketing of innovations including:
    • $120M to promote mobilizing projects in Québec;
    • $22.5M Support the restructuring the business model of the Centre de recherche industrielle du Québec (CRIQ);
    • $3.5M increase in financial support for niches of excellence in the regions;
    • $5M to support creation of the World Artificial Intelligence Organization in Montréal; and
    • $20.5M Support the Université de Sherbrooke’s project of an integrated innovation chain for digital prosperity.

Business Growth 

  • Reducing payroll taxes through:
    • A $1.2B reduction in the Health Services Fund (HSF) contribution for all small to medium-sized businesses (SMBs); and
    • A gradual reduction of the tax rate of SMBs in the service and construction sectors from 8% to 4%. The tax rate of SMBs in the manufacturing sector was reduced from 8% to 4% effective April 1, 2015, and was likewise reduced for SMBs in the primary sector effective January 1, 2017.
  • Stimulating growth of SMBs via:
    • $10M over 5 years for the creation of Réseau200, which will bring together entrepreneurs and their peers from the business world;
    • $35.4M for initiatives to support accelerators and incubators for Québec businesses;
    • An additional $2.4M over 3 years to support the creation of centres of excellence in the information and communication technologies (ICT) and digital technologies sectors; and
    • $3.4M to support SMBs in their growth projects.
  • Providing additional sums for specialized investment funds in collaboration with other investors, namely:
    • $61.5M for Teralys Capital, a private fund manager investing in innovative businesses;
    • $2M for the Accélérateur de création d’entreprises technologiques (ACET) Capital II fund to help technological entrepreneurs find adequate financing for starting their business; and
    • Support for development of social economy enterprises including continued support for the Chantier de l’économie sociale Trust and support for activities of tax-advantaged funds.
  • Enhancing electricity discounts for major projects, including:
    • An adjustment in the maximum duration of the discount for large projects, which is extended from four to six years; and
    • A 4 year deferral of the discount application period end date, which is moved back to December 31, 2028.

Workforce Development

  • Contributing $810M for a National Workforce Strategy to meet the challenges of the labour market, including:
    • Commitments to improve the flexibility of vocational and technical studies programs; and
    • Implementation of a new process for receiving and processing immigration applications under the Regular Skilled Worker Program which, once implemented, will also provide business and employment integration support (more details will be released in April 2018).
  • Creating a new refundable tax credit for training workers, via enrollment in a training program that leads to a diploma, employed in SMBs to support 30% of eligible training expenditures incurred between March 27, 2018 and January 1, 2023, with up to $5,460 provided per year for each eligible employee (30% rate is linearly reduced where total payroll exceeds $5M, reaching 0% at a total payroll of $7M).
  • Improving refundable tax credits for on-the-job training periods (internships) through:
    • Increasing maximum hourly rates and weekly caps;
    • Increasing base and increased tax credit rates for businesses that operate in remote resource regions, to encourage training young people; and
    • Increasing base and increased tax credit rates for Aboriginal people, to encourage Québec businesses to facilitate their employment integration.

Ontario Budget 2018 Highlights

The Ontario 2018 Budget, tabled on March 28, 2018, projects a growing deficit over the next three years and is predicted to resume a downward trend in 2022 with accumulated deficit expected to decline from 23.2% of gross domestic product (GDP) in 2017-18 to 22.1% by 2022.

The Ontario Budget proposes several measures and investments that impact businesses, including:

Innovation

  • An increase to the Ontario Research and Development Tax Credit (ORDTC) from 3.5% to 5.5% for eligible R&D expenditures over $1M (per taxation year) incurred on or after March 28, 2018.
  • Enhancements to the Ontario Innovation Tax Credit (OITC) for eligible R&D expenditures incurred on or after March 28, 2018 based on the ratio of R&D expenditures to gross revenues. Companies with a ratio of R&D expenditures to gross revenue of:
    • 10% or less will continue to claim the OITC at a rate of 8%;
    • 10-20% will be eligible for an enhanced OITC rate that will increase from 8% to 12% on a straight-line basis; and
    • 20% or more will be eligible to claim the OITC at a rate of 12%.
  • Expansions to the Ontario Interactive Digital Media Tax Credit (OIDMTC) eligibility criteria to include broadcaster purchased or licensed film/television websites that host film, television, or Internet production content not previously assessed (before Nov 1, 2017).
  • A review of various tax incentives implemented in other jurisdictions such as preferential corporate income tax rates (i.e., patent boxes), tax refunds, tax deductions, and exemptions with the intention of developing a provincial incentive to encourage Intellectual Property (IP).
  • An additional $50M over 10 years for the New Transformative Technology Partnerships Fund for businesses, SMEs, and scale‐ups as well as post-secondary and research institutions to collaborate on new dynamic products and services in artificial intelligence (AI), 5G wireless communications, autonomous vehicles, advanced computing, and quantum technologies.

Business Growth

  • In parallel with the 2018 Federal Budget proposal to phase-out or grind the $500,000 small-business limit, the Ontario Budget proposes to phase out the small-business limit on a straight-line basis for CCPCs (and associated corporations) earning between $50,000 and $150,000 of passive investment income in taxation years beginning after 2018.
  • Ending the electricity debt retirement charge (DRC) for mid-sized commercial and industrial non-ICI or non-RRP, Class B consumers as of April 1, 2018.
  • An additional $100M over 10 years for the Eastern Ontario Development Fund (EODF) and the Southwestern Ontario Development Fund (SWODF) to support regional economic development by creating jobs, attracting private sector investment and promoting innovation, and encouraging collaboration and cluster development.
  • An additional $500M over 10 years for the New Economy Fund for investing in priority sectors such as advanced manufacturing, information and communication technology (ICT), life sciences, and clean-tech.
  • An additional $85M over 3 years for the Northern Ontario Heritage Fund to stimulate economic development and diversification across the region.
  • An additional $100M over 10 years for a new Greater Toronto & Hamilton Area Fund to support SMEs in the GTA and Hamilton area.

Export Market

  • Work to implement a Global Trade Strategy to diversify and promote trade in Ontario. This will include the Accelerate to International Markets program, the Global Growth Fund, and the Magnet Export Business Portal.

Startup Support

  • An additional $85M over 10 years for a new Venture Technology Fund to support a select number of very high‐potential, fast‐growing firms in expanding to become globally competitive.
  • An additional $15M over the next 3 years to NextAI, a Toronto based accelerator for early stage startups that leverage AI technologies.

Workforce Development

  • An additional $170M over 3 years for the new Ontario Apprenticeship Strategy to support transition into apprenticeship from high school, make the system easier to navigate, and to improve access for apprentices to high‐quality jobs upon completion.
  • Transforming the Apprenticeship Training Tax Credit (ATTC) into the new Graduated Apprenticeship Grant for Employers (GAGE) to encourage employers to ensure that apprentices complete their training.

Historic Reform of Funding Programs: Budget 2018 Highlights

Federal Finance Minister Bill Morneau’s third budget, tabled on February 27th, 2018, forecasted a deficit of $18.1B for fiscal 2018, with deficits projected to decline gradually to $12.3B by 2022.

Budget 2018 confirmed the announcements made in the 2017 Fall Economic Statement to reduce the small business tax rate to 9% by January 2019. There were no proposed changes to the corporate income tax rates or to the $500,000 Small-Business Deduction Limit for Canadian-controlled private corporations (CCPCs); however, Budget 2018 introduced a $50,000 threshold on passive income held in corporations. The small business deduction limit will be reduced by $5 for every $1 of investment income above the $50,000 threshold and will be reduced to zero at $150,000 of investment income, at which point the business owner will lose the Small Business tax rate and will be taxed at the general corporate rate.

Following a review of all innovation programs across 20 federal departments and agencies, Budget 2018 proposed a “historic reform of business innovation programs.” Overall funding will increase but the total number of business innovation programs will be streamlined by up to two thirds. The initiatives proposed in Budget 2018 include:

Research & Innovation

  • $700M over 5 years, starting in 2018, to enable the Industrial Research Assistance Program (IRAP) to support projects up to a new threshold of $100M.
  • The Strategic Innovation Fund (SIF) will move away from supporting smaller projects to allow for more focused support for projects over $10M.
  • The Build in Canada Innovation Program (BCIP) will be consolidated within Innovative Solutions Canada.
  • $85.3M over 5 years, starting in 2018, to support a new Intellectual Property (IP) Strategy aimed at helping entrepreneurs understand and protect their IP and get access to shared IP. Further details will be revealed in the coming months.
  • Five regional high-tech innovation superclusters were announced in February 2018 to receive $950M over 5 years in non-repayable funding.

Business Growth

Small business & Startups

  • $4.6M over 5 years, beginning in 2018, for Canada’s Start-up Visa Program, which provides permanent resident immigration status to innovative global entrepreneurs with business growth potential in Canada. As announced in July 2017, this program will be made permanent in March 31, 2018.
  • $115M over 5 years for the Women Entrepreneurship Strategy through regional development agencies.
  • $1.65B over 3 years for women entrepreneurs through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC).
  • Regional development agencies may take on more responsibilities for accelerator and incubator support such as the Canadian Accelerator and Incubator Program.
  • The Venture Capital Catalyst Initiative was launched this past year to increase the availability of late-stage venture capital to support the growth of innovative Canadian firms.

Export

  • The Canadian Trade Commissioner Service will amalgamate programs administered by Global Affairs Canada including CanExport, Going Global Innovation, Canadian Technology Accelerators, and Canadian International Innovation program.
  • $10M over 5 years, starting in 2018, to renew the Canadian Technology Accelerators Program for helping high growth tech companies grow in key U.S. markets.
  • $10M over 5 years, starting in 2018, to connect women with expanded export services and opportunities through the Business Women in International Trade Program.

Skills Development

  • Additional $448.5M over 5 years, starting in 2018, for the Youth Employment Strategy’s Canada Summer Jobs program to double the number of work placements and modernize the strategy in the following years.
  • $19.9M over 5 years, starting in 2018, to pilot an Apprenticeship Incentive Grant for Women, to provide a $3,000 grant for each of the first two years of training in Red Seal trades.
  • $46M over 5 years, starting in 2018, for a new Pre-apprenticeship program for underrepresented groups.

The Fate of Canadian Manufacturing

The Canadian Manufacturing Coalition (CMC) recently sent a letter to Canada’s Federal Minister of Finance, the Honourable William Morneau, on behalf of thousands of members of undersigned manufacturing associations. The letter emphasized the importance of manufacturing to the Canadian economy and urges the government to make several tax reforms for the upcoming 2018 Federal Budget in order to boost investment and growth including:

  1. Reducing federal and provincial general corporate taxes to a combined 20%.
  2. Expanding and improving the Accelerated Capital Cost Allowance (ACCA) depreciation rules to mirror the new US rules.
  3. Introducing an Investment Tax Credit on purchases of new equipment and software of between 10-15% to help companies, especially SMEs, improve cash flow and offset the impact of the low Canadian dollar on the cost of buying foreign machinery and equipment.
  4. Introducing a “patent box” innovation support that would reduce taxes on profits from new products and product mandates.
  5. Lowering the top marginal personal income tax rate from 33% to 31%.
  6. Reforming the Scientific Research and Experimental Development (SR&ED) program to lower the administrative burden and support a broader range of corporate innovation needs, especially product commercialization.

CMC believes that currently the SR&ED program is “focused on a limited range of primary research and discovery” through an “overly aggressive audit function” rather than provide support particularly with commercialization and scale-up innovation needs.

According to CMC, “Canadian manufacturing is at a critical juncture. While output and exports are near an all-time high, capital investment and foreign direct investment have fallen, resulting in weakening productivity and global competitiveness, and fewer new innovations.”

Although CMC applauds various government initiatives (such as funding of Super Clusters, the creation of the Strategic Innovation Fund, the establishment of Innovation Canada, the expansion of training programs, and a long term national infrastructure plan), the letter stresses that “the ongoing challenges facing our economy require that more must be done to support investment and growth in our sector and across the business community more generally.”

Contact us today to find out how recent policy changes can impact your company and to learn about emerging opportunities that may help to grow your business.

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