Budget Implementation Act, 2006, No. 2 (S.C. 2007, c. 2)

Assented to 2007-02-21

Budget Implementation Act, 2006, No. 2

S.C. 2007, c. 2

Assented to 2007-02-21

A second Act to implement certain provisions of the budget tabled in Parliament on May 2, 2006

SUMMARY

Part 1 implements the following income tax measures proposed or referenced in Budget 2006:

  • – 
    the new Canada Employment Credit;
  • – 
    the new Textbook Tax Credit;
  • – 
    the new tax credit for public transit passes;
  • – 
    the new deduction for tradespeople’s tool expenses;
  • – 
    a complete exemption for scholarship income received in connection with enrolment at an institution which qualifies the student for the education tax credit;
  • – 
    the new Children’s Fitness Tax Credit;
  • – 
    a doubling, to $2,000 from $1,000, of the amount on which the pension income credit is calculated;
  • – 
    an extension of the $500,000 lifetime capital gains exemption, and various intergenerational rollovers, to fishers;
  • – 
    the new Apprenticeship Job Creation Tax Credit;
  • – 
    a reduction of the current 12 per cent small business tax rate to 11.5 per cent for 2008 and to 11 per cent thereafter;
  • – 
    an increase, to $400,000 from $300,000, of the amount that a small business can earn at the small business tax rate, effective January 1, 2007; and
  • – 
    a reduction of the minimum tax on financial institutions.

Part 2 implements the proposal in Budget 2006 to lower the income tax rate on large corporation dividends received by Canadians.

Part 3 implements the proposal in Budget 2006 to reduce excise duties for Canadian vintners and brewers.

Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

SHORT TITLE

Marginal note:Short title

 This Act may be cited as the Budget Implementation Act, 2006, No. 2.

PART 1R.S., c. 1 (5th Supp.)AMENDMENTS TO THE INCOME TAX ACT

  •  (1) Clause (B) of the description of B in subparagraph 8(1)(r)(ii) of the Income Tax Act is replaced by the following:

    • (B) the greater of

      • (I) the amount that is the total of $500 and the amount determined for the taxation year for B in subsection 118(10), and

      • (II) 5% of the total of

        • 1. the total of all amounts each of which is the taxpayer’s income from employment for the taxation year as an eligible apprentice mechanic, computed without reference to this paragraph, and

        • 2. the amount, if any, by which the amount required by paragraph 56(1)(n.1) to be included in computing the taxpayer’s income for the taxation year exceeds the amount required by paragraph 60(p) to be deducted in computing that income, and

  • (2) Subsection 8(1) of the Act is amended by striking out the word “and” at the end of paragraph (q), by adding the word “and” at the end of paragraph (r) and by adding the following after paragraph (r):

    • Marginal note:Deduction — tradesperson’s tools

      (s) if the taxpayer is employed as a trades­person at any time in the taxation year, the lesser of $500 and the amount determined by the formula

      A - $1,000

      where

      A  
      is the lesser of
      • (i) the total of all amounts each of which is the cost of an eligible tool acquired by the taxpayer in the year, and

      • (ii) the total of

        • (A) the amount that would, if this subsection were read without reference to this paragraph, be the taxpayer’s income for the taxation year from employment as a trades­person in the taxation year, and

        • (B) the amount, if any, by which the amount required by paragraph 56(1)(n.1) to be included in computing the taxpayer’s income for the taxation year exceeds the amount required by paragraph 60(p) to be deducted in computing that income.

  • (3) Subparagraph 8(6)(a)(i) of the Act is replaced by the following:

    • (i) is registered in a program established in accordance with the laws of Canada or of a province that leads to designation under those laws as a mechanic licensed to repair self-propelled motorized vehicles, and

  • (4) Paragraph 8(6)(b) of the Act is amended by striking out the word “and” at the end of subparagraph (ii) and by adding the following after subparagraph (iii):

    • (iv) is, unless the device or equipment can be used only for the purpose of measuring, locating or calculating, not an electronic communication device or electronic data processing equipment; and

  • (5) Subsection 8(7) of the Act is replaced by the following:

    • Marginal note:Eligible tool of tradesperson

      (6.1) For the purposes of paragraph (1)(s), an eligible tool of a taxpayer is a tool (including ancillary equipment) that

      • (a) is acquired by the taxpayer on or after May 2, 2006 for use in connection with the taxpayer’s employment as a tradesperson;

      • (b) has not been used for any purpose before it is acquired by the taxpayer;

      • (c) is certified in prescribed form by the taxpayer’s employer to be required to be provided by the taxpayer as a condition of, and for use in, the taxpayer’s employment as a tradesperson; and

      • (d) is, unless the device or equipment can be used only for the purpose of measuring, locating or calculating, not an electronic communication device or electronic data processing equipment.

    • Marginal note:Cost of tool

      (7) Except for the purposes of the description of A in subparagraph (1)(r)(ii) and the description of A in paragraph (1)(s), the cost to a taxpayer of an eligible tool the cost of which was included in determining the value of one or both of those descriptions in respect of the taxpayer for a taxation year is the amount determined by the formula

      K - (K × L/M)

      where

      K 
      is the cost to the taxpayer of the tool determined without reference to this subsection;
      L 
      is
      • (a) if the tool is a tool to which only paragraph (1)(r) applies in the taxation year, the amount that would be determined under subparagraph (1)(r)(ii) in respect of the taxpayer for the taxation year if the value of C in that subparagraph were nil,

      • (b) if the tool is a tool to which only paragraph (1)(s) applies in the taxation year, the amount determined under that paragraph to be deductible by the taxpayer in the taxation year, or

      • (c) if the tool is a tool to which both paragraphs (1)(r) and (s) apply in the taxation year, the amount that is the total of

        • (i) the amount that would be determined under subparagraph (1)(r)(ii) in respect of the taxpayer for the taxation year if the value of C in that subparagraph were nil, and

        • (ii) the amount determined under paragraph (1)(s) to be deductible by the taxpayer in the taxation year; and

      M 
      is the amount that is
      • (a) if the tool is a tool to which only paragraph (1)(r) applies in the taxation year, the value of A determined under subparagraph (1)(r)(ii) in respect of the taxpayer for the taxation year,

      • (b) if the tool is a tool to which only paragraph (1)(s) applies in the taxation year, the amount determined under subparagraph (i) of the description of A in paragraph (1)(s) in respect of the taxpayer for the taxation year, and

      • (c) if the tool is a tool to which both paragraphs (1)(r) and (s) apply in the taxation year, the amount that is the greater of the value of A determined under subparagraph (1)(r)(ii) in respect of the taxpayer for the taxation year and the amount determined under subparagraph (i) of the description of A in paragraph (1)(s) in respect of the taxpayer for the taxation year.

  • (6) Subsection (1) applies to the 2006 and subsequent taxation years except that, for the 2006 taxation year, subclause (B)(I) of the description of B in subparagraph 8(1)(r)(ii) of the Act, as enacted by subsection (1), is to be read as follows:

    • (I) the amount that is the total of $1,000 and the amount, if any, deducted by the taxpayer for the taxation year under paragraph (1)(s), and

  • (7) Subsections (2) and (5) apply to the 2006 and subsequent taxation years.

  • (8) Subsections (3) and (4) apply to property acquired on or after May 2, 2006.

  •  (1) The portion of subsection 14(1.01) of the Act before paragraph (c) is replaced by the following:

    • Marginal note:Election re capital gain

      (1.01) A taxpayer may, in the taxpayer’s return of income for a taxation year, or with an election under subsection 83(2) filed on or before the taxpayer’s filing-due date for the taxation year, elect that the following rules apply to a disposition made at any time in the year of an eligible capital property in respect of a business, if the taxpayer’s actual proceeds of the disposition exceed the taxpayer’s eligible capital expenditure in respect of the acquisition of the property, that eligible capital expenditure can be determined and, for taxpayers who are individuals, the taxpayer’s exempt gains balance in respect of the business for the taxation year is nil:

      • (a) for the purpose of subsection (5) other than the description of A in the definition “cumulative eligible capital”, the proceeds of disposition of the property are deemed to be equal to the amount of that eligible capital expenditure;

      • (b) the taxpayer is deemed to have disposed at that time of a capital property that had, immediately before that time, an adjusted cost base to the taxpayer equal to the amount of that eligible capital expenditure, for proceeds of disposition equal to the actual proceeds; and

  • (2) Paragraph 14(1.01)(c) of the Act is replaced by the following:

    • (c) if the eligible capital property is

    • (i) a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer at that time, the capital property deemed by paragraph (b) to have been disposed of by the taxpayer is deemed to be a qualified farm property of the taxpayer at that time, and

    • (ii) a qualified fishing property (within the meaning assigned by subsection 110.6(1)) of the taxpayer at that time, the capital property deemed by paragraph (b) to have been disposed of by the taxpayer is deemed to be a qualified fishing property of the taxpayer at that time.

  • (3) Section 14 of the Act is amended by adding the following after subsection (1.01):

    • Marginal note:Election re property acquired with pre-1972 outlays or expenditures

      (1.02) If at any time in a taxation year a taxpayer has disposed of an eligible capital property in respect of which an outlay or expenditure to acquire the property was made before 1972 (which outlay or expenditure would have been an eligible capital expenditure if it had been made or incurred as a result of a transaction that occurred after 1971), the taxpayer’s actual proceeds of the disposition exceed the total of those outlays or expenditures, that total can be determined, subsection 21(1) of the Income Tax Application Rules applies in respect of the disposition and, for taxpayers who are individuals, the taxpayer’s exempt gains balance in respect of the business for the taxation year is nil, the taxpayer may, in the taxpayer’s return of income for the taxation year, or with an election under subsection 83(2) filed on or before the taxpayer’s filing-due date for the taxation year, elect that the following rules apply:

      • (a) for the purpose of subsection (5) other than the description of A in the definition “cumulative eligible capital”, the proceeds of disposition of the property are deemed to be nil;

      • (b) the taxpayer is deemed to have disposed at that time of a capital property that had, immediately before that time, an adjusted cost base to the taxpayer equal to nil, for proceeds of disposition equal to the amount determined, in respect of the disposition, under subsection 21(1) of the Income Tax Application Rules; and

      • (c) if the eligible capital property is at that time a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer, the capital property deemed by paragraph (b) to have been disposed of by the taxpayer is deemed to have been at that time a qualified farm property of the taxpayer.

    • Marginal note:Non-application of subsections (1.01) and (1.02)

      (1.03) Subsections (1.01) and (1.02) do not apply to a disposition by a taxpayer of a property

      • (a) that is goodwill; or

      • (b) that was acquired by the taxpayer

        • (i) in circumstances where an election was made under subsection 85(1) or (2) and the amount agreed on in that election in respect of the property was less than the fair market value of the property at the time it was so acquired, and

        • (ii) from a person or partnership with whom the taxpayer did not deal at arm’s length and for whom the eligible capital expenditure in respect of the acquisition of the property cannot be determined.

  • (4) Paragraph 14(1.02)(c) of the Act, as enacted by subsection (3), is replaced by the following:

    • (c) if the eligible capital property is

      • (i) a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer at that time, the capital property deemed by paragraph (b) to have been disposed of by the taxpayer is deemed to be a qualified farm property of the taxpayer at that time, and

    • (ii) a qualified fishing property (within the meaning assigned by subsection 110.6(1)) of the taxpayer at that time, the capital property deemed by paragraph (b) to have been disposed of by the taxpayer is deemed to be a qualified fishing property of the taxpayer at that time.

  • (5) Section 14 of the Act is amended by adding the following after subsection (1.1):

    • Marginal note:Deemed capital gain

      (1.2) For the purposes of section 110.6 and paragraph 3(b) as it applies for the purposes of that section, an amount included under paragraph (1)(b) in computing a taxpayer’s income for a particular taxation year from a fishing business is deemed to be a taxable capital gain of the taxpayer for the year from the disposition in the year of qualified fishing property to the extent of the lesser of

      • (a) the amount included under paragraph (1)(b) in computing the taxpayer’s income for the particular year from the fishing business, and

      • (b) the amount determined by the formula

        A - B

        where

        A 
        is the amount by which
        • (i) ½ of the total of all amounts each of which is the taxpayer’s proceeds from a disposition on or after May 2, 2006 and in the particular taxation year or a preceding taxation year of eligible capital property (referred to in this subsection as a “disposed property”) that was at the time of the disposition a qualified fishing property (within the meaning assigned by subsection 110.6(1)) of the taxpayer exceeds the total of

        • (ii) ½ of the total of all amounts each of which is

          • (A) an eligible capital expenditure of the taxpayer in respect of the fishing business that was made or incurred in respect of a disposed property, or

          • (B) an outlay or expense of the taxpayer that was not deductible in computing the taxpayer’s income and that was made or incurred for the purpose of making a disposition of a disposed property, and

        B 
        is the total of all amounts each of which is an amount deemed by this section to be a taxable capital gain of the taxpayer for a taxation year preceding the particular year from the disposition of qualified fishing property of the taxpayer.
  • (6) The description of E in the definition “cumulative eligible capital” in subsection 14(5) of the Act is replaced by following:

    E 
    is the total of all amounts each of which is ¾ of the amount, if any, by which
    • (a) an amount that the taxpayer has or may become entitled to receive, after the taxpayer’s adjustment time and before that time, on account of capital in respect of the business carried on or formerly carried on by the taxpayer, other than an amount that

      • (i) is included in computing the taxpayer’s income, or deducted in computing, for the purposes of this Act, any balance of undeducted outlays, expenses or other amounts for the year or a preceding taxation year,

      • (ii) reduces the cost or capital cost of a property or the amount of an outlay or expense, or

      • (iii) is included in computing any gain or loss of the taxpayer from a disposition of a capital property

    exceeds

    • (b) all outlays and expenses that were not otherwise deductible in computing the taxpayer’s income and were made or incurred by the taxpayer for the purpose of obtaining the amount described by paragraph (a), and

  • (7) Subsection (1) applies to dispositions of eligible capital property that occur in taxation years that end after February 27, 2000, except that, in its application to those dispositions of eligible capital property that occur before December 21, 2002, the portion of subsection 14(1.01) of the Act before paragraph (c), as enacted by subsection (1), is to be read as follows:

    • (1.01) A taxpayer may, in the taxpayer’s return of income for a taxation year, elect that the following rules apply to a disposition made at any time in the taxation year of an eligible capital property (other than goodwill) in respect of a business, if the taxpayer’s actual proceeds of the disposition exceed the taxpayer’s cost of the property, that cost can be determined and, for taxpayers who are individuals, the taxpayer’s exempt gains balance in respect of the business for the taxation year is nil:

      • (a) for the purposes of subsection (5), the proceeds of disposition of the property are deemed to be equal to that cost;

      • (b) the taxpayer is deemed to have disposed at that time of a capital property that had, immediately before that time, an adjusted cost base to the taxpayer equal to that cost, for proceeds of disposition equal to the actual proceeds; and

  • (8) Subsections (2), (4) and (5) apply to dispositions of property that occur on or after May 2, 2006.

  • (9) Subsection (3) applies to dispositions of eligible capital property that occur after December 20, 2002, except that, in applying subsection 14(1.03) of the Act, as enacted by subsection (3), to dispositions that occur on or before February 27, 2004, subsection 14(1.03) is to be read without reference to its paragraph (b).

  • (10) Subsection (6) applies to amounts that become receivable on or after May 2, 2006, except that it does not apply to an amount that became receivable by a taxpayer before August 31, 2006 if the taxpayer so elects by filing with the Minister of National Revenue an election in writing on or before the taxpayer’s filing-due date for the taxpayer’s taxation year that includes August 31, 2006.

 
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