Budget Implementation Act, 2016, No. 1 (S.C. 2016, c. 7)

Assented to 2016-06-22

Budget Implementation Act, 2016, No. 1

S.C. 2016, c. 7

Assented to 2016-06-22

An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures

RECOMMENDATION

His Excellency the Governor General recommends to the House of Commons the appropriation of public revenue under the circumstances, in the manner and for the purposes set out in a measure entitled “An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures”.

SUMMARY

Part 1 implements certain income tax measures proposed in the March 22, 2016 budget by

  • (a) eliminating the education tax credit;

  • (b) eliminating the textbook tax credit;

  • (c) exempting from taxable income amounts received as rate assistance under the Ontario Electricity Support Program;

  • (d) maintaining the small business tax rate at 10.5% for the 2016 and subsequent taxation years and making consequential adjustments to the dividend gross-up factor and dividend tax credit;

  • (e) increasing the maximum deduction available under the northern residents deduction;

  • (f) eliminating the children’s arts tax credit;

  • (g) eliminating the family tax cut credit;

  • (h) replacing the Canada child tax benefit and universal child care benefit with the new Canada child benefit;

  • (i) eliminating the child fitness tax credit;

  • (j) introducing the school supplies tax credit;

  • (k) extending, for one year, the mineral exploration tax credit for flow-through share investors;

  • (l) restoring the labour-sponsored venture capital corporations tax credit for purchases of shares of provincially registered labour-sponsored venture capital corporations for the 2016 and subsequent taxation years; and

  • (m) introducing changes consequential to the introduction of the new 33% individual tax rate.

Part 1 implements other income tax measures confirmed in the March 22, 2016 budget by

  • (a) amending the anti-avoidance rules in the Income Tax Act that prevent the conversion of capital gains into tax-deductible intercorporate dividends;

  • (b) qualifying certain costs associated with undertaking environmental studies and community consultations as Canadian exploration expenses;

  • (c) ensuring that profits from the insurance of Canadian risks remain taxable in Canada;

  • (d) ensuring that the dividend rental arrangement rules under the Income Tax Act apply where there is a synthetic equity arrangement;

  • (e) providing specific tax rules in respect of the commercialization of the Canadian Wheat Board, including a tax deferral for eligible farmers;

  • (f) permitting registered charities and registered Canadian amateur athletic associations to hold limited partnership interests;

  • (g) providing an exemption to the withholding tax requirements for payments by qualifying non-resident employers to qualifying non-resident employees;

  • (h) limiting the circumstances in which the repeated failure to report income penalty will apply;

  • (i) permitting the sharing of taxpayer information within the Canada Revenue Agency to facilitate the collection of certain non-tax debts; and

  • (j) permitting the sharing of taxpayer information with the Office of the Chief Actuary.

Part 2 implements certain goods and services tax/harmonized sales tax (GST/HST) measures proposed in the March 22, 2016 budget by

  • (a) adding insulin pens, insulin pen needles and intermittent urinary catheters to the list of GST/HST zero-rated medical and assistive devices;

  • (b) clarifying that GST/HST generally applies to supplies of purely cosmetic procedures provided by all suppliers, including registered charities;

  • (c) relieving tax to ensure that when a charity makes a taxable supply of property or services in exchange for a donation and an income tax receipt may be issued for a portion of the donation, only the value of the property or services supplied is subject to GST/HST;

  • (d) ensuring that interest earned in respect of certain deposits is not included in determining whether a person is considered to be a financial institution for GST/HST purposes; and

  • (e) clarifying the treatment of imported reinsurance services under the GST/HST imported supply rules for financial institutions.

Part 2 also implements other GST/HST measures confirmed in the March 22, 2016 budget by

  • (a) adding feminine hygiene products to the list of GST/HST zero-rated products; and

  • (b) permitting the sharing of taxpayer information in respect of non-tax debts within the Canada Revenue Agency under certain federal and provincial government programs and in respect of certain programs where information sharing is currently permitted under the Income Tax Act.

Part 3 implements certain excise measures proposed in the March 22, 2016 budget by

  • (a) ensuring that excise tax relief for diesel fuel used as heating oil or to generate electricity is targeted to specific instances; and

  • (b) enhancing certain security and collection provisions in the Excise Act, 2001.

Part 3 also implements other excise measures confirmed in the March 22, 2016 budget by permitting the sharing of taxpayer information in respect of non-tax debts within the Canada Revenue Agency under certain federal and provincial government programs and in respect of certain programs where information sharing is currently permitted under the Income Tax Act.

Division 1 of Part 4 repeals the Federal Balanced Budget Act.

Division 2 of Part 4 amends the Canadian Forces Members and Veterans Re-establishment and Compensation Act to, among other things,

  • (a) replace “permanent impairment allowance” with “career impact allowance”;

  • (b) replace “totally and permanently incapacitated” with “diminished earning capacity”;

  • (c) increase the percentage in the formula used to calculate the earnings loss benefit;

  • (d) specify when a disability award becomes payable and clarify the formula used to calculate the amount of a disability award;

  • (e) increase the amounts of a disability award; and

  • (f) increase the amount of a death benefit.

In addition, it contains transitional provisions that provide, among other things, that the Minister of Veterans Affairs must pay, to a person who received a disability award or a death benefit under that Act before April 1, 2017, an amount that represents the increase in the amount of the disability award or the death benefit, as the case may be. It also makes consequential amendments to the Children of Deceased Veterans Education Assistance Act, the Pension Act and the Income Tax Act.

Division 3 of Part 4 amends the sunset provisions of certain Acts governing federal financial institutions to extend by two years, namely, from March 29, 2017 to March 29, 2019, the period during which those institutions may carry on business.

Division 4 of Part 4 amends the Bank Act to facilitate the continuance of local cooperative credit societies as federal credit unions by granting the Minister of Finance the authority to provide transitional procedural exemptions, as well as a loan guarantee.

Division 5 of Part 4 amends the Canada Deposit Insurance Corporation Act to, among other things, broaden the Corporation’s powers to temporarily control or own a domestic systemically important bank and to convert certain shares and liabilities of such a bank into common shares.

It also amends the Bank Act to allow the designation of domestic systemically important banks by the Superintendent of Financial Institutions and to require such banks to maintain a minimum capacity to absorb losses.

Lastly, it makes consequential amendments to the Financial Administration Act, the Winding-up and Restructuring Act and the Payment Clearing and Settlement Act.

Division 6 of Part 4 amends the Office of the Superintendent of Financial Institutions Act to change the membership of the committee established under that Act so that the Chairperson of the Canada Deposit Insurance Corporation is replaced by that Corporation’s Chief Executive Officer. It also amends several Acts to replace references to that Chairperson with references to that Chief Executive Officer.

Division 7 of Part 4 amends the Federal-Provincial Fiscal Arrangements Act to authorize an additional payment to be made to a territory, in order to take into account the amount of the territorial formula financing payment that would have been paid to that territory for the fiscal year beginning on April 1, 2016, if that amount had been determined using the recalculated amount determined to be the gross expenditure base for that fiscal year.

Division 8 of Part 4 amends the Financial Administration Act to restrict the circumstances in which the Governor in Council may authorize the borrowing of money without legislative approval.

Division 9 of Part 4 amends the Old Age Security Act to increase the single rate of the guaranteed income supplement for the lowest-income pensioners by up to $947 annually and to repeal section 2.2 of that Act, which increases the age of eligibility to receive a benefit.

Division 10 of Part 4 amends the Special Import Measures Act to provide that a finding by the President of the Canada Border Services Agency of an insignificant margin of dumping or an insignificant amount of subsidy in respect of goods imported into Canada will no longer result in the termination of a trade remedy investigation prior to the President’s preliminary determination. It also provides that expiry reviews may be initiated from a date that is closer to the expiry date of an anti-dumping or countervailing measure and makes amendments related to that new time period.

Division 11 of Part 4 amends the Pension Benefits Standards Act, 1985 to combine the authorities for bilateral agreements and multilateral agreements into one authority for federal-provincial agreements, and to clarify that federal-provincial agreements may permit the application of provincial legislation with respect to a pension plan.

Division 12 of Part 4 amends the Employment Insurance Act to, among other things,

  • (a) increase, until July 8, 2017, the maximum number of weeks for which benefits may be paid to certain claimants in certain regions;

  • (b) eliminate the category of claimants who are new entrants and re-entrants; and

  • (c) reduce to one week the length of the waiting period during which claimants are not entitled to benefits.

Division 13 of Part 4 amends the Canada Marine Act to allow the Minister of Canadian Heritage to make payments to Canada Place Corporation for certain celebrations.

Division 14 of Part 4 amends the Jobs, Growth and Long-term Prosperity Act to authorize the Minister of Infrastructure, Communities and Intergovernmental Affairs to acquire the shares of PPP Canada Inc. on behalf of Her Majesty in right of Canada. It also sets out that the appropriate Minister, as defined in the Financial Administration Act, holds those shares and authorizes that appropriate Minister to conduct, with the Governor in Council’s approval, certain transactions relating to PPP Canada Inc. Finally, it authorizes PPP Canada Inc. and its wholly-owned subsidiaries to sell, with the Governor in Council’s approval, their assets in certain circumstances.

Division 15 of Part 4 amends the Canada Foundation for Sustainable Development Technology Act to modify the process that leads to the Governor in Council’s appointment of persons to the board of directors of the Canada Foundation for Sustainable Development Technology by eliminating the role of the Minister of Natural Resources and the Minister of the Environment as well as the consultative role of the Minister of Industry from that process. It also amends the Budget Implementation Act, 2007 to provide that a sum may be paid out of the Consolidated Revenue Fund to the Foundation on the requisition of the Minister of Industry and to clarify the maximum amount of that sum.

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, 2016, No. 1.

PART 1Amendments to the Income Tax Act and to Related Legislation

R.S., c. 1 (5th Supp.)Income Tax Act

  •  (1) Paragraph 52(3)(a) of the Income Tax Act is replaced by the following:

    • (a) where the stock dividend is a dividend,

      • (i) in the case of a shareholder that is an individual, the amount of the stock dividend, and

      • (ii) in any other case, the total of all amounts each of which is

        • (A) the amount, if any, by which

          • (I) the amount that is the lesser of the amount of the stock dividend and its fair market value

          exceeds

          • (II) the amount of the dividend that the shareholder may deduct under subsection 112(1) in computing the shareholder’s taxable income, except any portion of the dividend that, if paid as a separate dividend, would not be subject to subsection 55(2) because the amount of the separate dividend would not exceed the amount of the income earned or realized by any corporation — after 1971 and before the safe-income determination time for the transaction, event or series of transactions or events as part of which the dividend is received — that could reasonably be considered to contribute to the capital gain that could be realized on a disposition at fair market value, immediately before the dividend, of the share on which the dividend is received, and

        • (B) the amount determined by the formula

          A + B

          where

          A
          is the amount of the deemed gain under paragraph 55(2)(c) in respect of that stock dividend, and
          B
          is the amount, if any, by which the amount of the reduction under paragraph 55(2.3)(b) in respect of that stock dividend to which paragraph 55(2)(a) would otherwise apply exceeds the amount determined for clause (A) in respect of that dividend;
  • (2) Subsection (1) applies to stock dividends received after April 20, 2015, except that, in respect of stock dividends that are declared after April 20, 2015 and before July 31, 2015, and that are received before September 30, 2015,

    • (a) clause 52(3)(a)(ii)(A), as enacted by subsection (1), is to be read as follows:

      • (A) the lesser of the amount of the stock dividend and its fair market value, and

    • (b) the description of B in clause 52(3)(a)(ii)(B), as enacted by subsection (1), is to be read without reference to the words “to which paragraph 55(2)(a) would otherwise apply”.

  •  (1) Subparagraph 53(1)(b)(ii) of the Act is replaced by the following:

    • (ii) the portion of the total determined under subparagraph (i) that relates to dividends in respect of which the taxpayer was permitted a deduction under subsection 112(1) in computing the taxpayer’s taxable income, except any portion of the dividend that, if paid as a separate dividend, would not be subject to subsection 55(2) because the amount of the separate dividend would not exceed the amount of the income earned or realized by any corporation — after 1971 and before the safe-income determination time for the transaction, event or series of transactions or events as part of which the dividend is received — that could reasonably be considered to contribute to the capital gain that could be realized on a disposition at fair market value, immediately before the dividend, of the share on which the dividend is received;

  • (2) Subsection (1) applies to dividends received after April 20, 2015.

  •  (1) Paragraph (j) of the definition proceeds of disposition in section 54 of the Act is replaced by the following:

    • (j) any amount that would otherwise be proceeds of disposition of a share to the extent that the amount is deemed by subsection 84(2) or (3) to be a dividend received except to the extent the dividend is deemed

      • (i) by paragraph 55(2)(b) to be proceeds of disposition of the share, or

      • (ii) by subparagraph 88(2)(b)(ii) not to be a dividend, or

  • (2) Subsection (1) applies to dividends received after April 20, 2015.

  •  (1) Subsection 55(2) of the Act is replaced by the following:

    • Marginal note:Deemed proceeds or gain

      (2) If this subsection applies to a taxable dividend received by a dividend recipient, notwithstanding any other provision of this Act, the amount of the dividend (other than the portion of it, if any, subject to tax under Part IV that is not refunded as a consequence of the payment of a dividend by a corporation where the payment is part of the series referred to in subsection (2.1)) is deemed

      • (a) not to be a dividend received by the dividend recipient;

      • (b) if the dividend is received on a redemption, acquisition or cancellation of a share, by the corporation that issued the share, to which subsection 84(2) or (3) applies, to be proceeds of disposition of the share that is redeemed, acquired or cancelled except to the extent that the dividend is otherwise included in computing those proceeds; and

      • (c) if paragraph (b) does not apply to the dividend, to be a gain of the dividend recipient, for the year in which the dividend was received, from the disposition of a capital property.

    • Marginal note:Application of subsection (2)

      (2.1) Subsection (2) applies to a taxable dividend received by a corporation resident in Canada (in subsections (2) to (2.2) and (2.4) referred to as the dividend recipient) as part of a transaction or event or a series of transactions or events if

      • (a) the dividend recipient is entitled to a deduction in respect of the dividend under subsection 112(1) or (2) or 138(6);

      • (b) it is the case that

        • (i) one of the purposes of the payment or receipt of the dividend (or, in the case of a dividend under subsection 84(3), one of the results of which) is to effect a significant reduction in the portion of the capital gain that, but for the dividend, would have been realized on a disposition at fair market value of any share of capital stock immediately before the dividend, or

        • (ii) the dividend (other than a dividend that is received on a redemption, acquisition or cancellation of a share, by the corporation that issued the share, to which subsection 84(2) or (3) applies) is received on a share that is held as capital property by the dividend recipient and one of the purposes of the payment or receipt of the dividend is to effect

          • (A) a significant reduction in the fair market value of any share, or

          • (B) a significant increase in the cost of property, such that the amount that is the total of the cost amounts of all properties of the dividend recipient immediately after the dividend is significantly greater than the amount that is the total of the cost amounts of all properties of the dividend recipient immediately before the dividend; and

      • (c) the amount of the dividend exceeds the amount of the income earned or realized by any corporation — after 1971 and before the safe-income determination time for the transaction, event or series — that could reasonably be considered to contribute to the capital gain that could be realized on a disposition at fair market value, immediately before the dividend, of the share on which the dividend is received.

    • Marginal note:Special rule — amount of the stock dividend

      (2.2) For the purpose of applying subsections (2), (2.1), (2.3) and (2.4), the amount of a stock dividend and the dividend recipient’s entitlement to a deduction under subsection 112(1) or (2) or 138(6) in respect of the amount of that dividend are to be determined as if paragraph (b) of the definition amount in subsection 248(1) read as follows:

      • (b) in the case of a stock dividend paid by a corporation, the greater of

        • (i) the amount by which the paid-up capital of the corporation that paid the dividend is increased by reason of the payment of the dividend, and

        • (ii) the fair market value of the share or shares issued as a stock dividend at the time of payment,

    • Marginal note:Stock dividends and safe income

      (2.3) If this subsection applies in respect of a stock dividend

      • (a) the amount of the stock dividend is deemed for the purpose of subsection (2) to be a separate taxable dividend to the extent of the portion of the amount that does not exceed the amount of the income earned or realized by any corporation — after 1971 and before the safe-income determination time for the transaction, event or series — that could reasonably be considered to contribute to the capital gain that could be realized on a disposition at fair market value, immediately before the dividend, of the share on which the dividend is received; and

      • (b) the amount of the separate taxable dividend referred to in paragraph (a) is deemed to reduce the amount of the income earned or realized by any corporation — after 1971 and before the safe-income determination time for the transaction, event or series — that could reasonably be considered to contribute to the capital gain that could be realized on a disposition at fair market value, immediately before the dividend, of the share on which the dividend is received.

    • Marginal note:Application of subsection (2.3)

      (2.4) Subsection (2.3) applies in respect of a stock dividend if

      • (a) a dividend recipient holds a share upon which it receives the stock dividend;

      • (b) the fair market value of the share or shares issued as a stock dividend exceeds the amount by which the paid-up capital of the corporation that paid the stock dividend is increased because of the dividend; and

      • (c) subsection (2) would apply to the dividend if subsection (2.1) were read without reference to its paragraph (c).

    • Marginal note:Determination of reduction in fair market value

      (2.5) For the purpose of applying clause (2.1)(b)(ii)(A), whether a dividend causes a significant reduction in the fair market value of any share is to be determined as if the fair market value of the share, immediately before the dividend, was increased by an amount equal to the amount, if any, by which the fair market value of the dividend received on the share exceeds the fair market value of the share.

  • (2) The portion of paragraph 55(3)(a) of the Act before subparagraph (i) is replaced by the following:

    • (a) in the case of a dividend that is received on a redemption, acquisition or cancellation of a share, by the corporation that issued the share, to which subsection 84(2) or (3) applies, if, as part of a transaction or event or a series of transactions or events as a part of which the dividend is received, there was not at any particular time

  • (3) Subparagraph 55(3.01)(d)(i) of the Act is replaced by the following:

    • (i) subparagraph (j)(i) of the definition proceeds of disposition in section 54, and

  • (4) Paragraph 55(5)(f) of the Act is replaced by the following:

    • (f) unless subsection (2.3) applies, if a corporation has received a dividend any portion of which is a taxable dividend (such a portion referred to as the taxable part in this paragraph), as part of a transaction or event or series of transactions or events

      • (i) a portion of the dividend is deemed to be a separate taxable dividend equal to the lesser of

        • (A) the taxable part, and

        • (B) the amount of the income earned or realized by any corporation — after 1971 and before the safe-income determination time for the transaction, event or series — that could reasonably be considered to contribute to the capital gain that could be realized on a disposition at fair market value, immediately before the dividend, of the share on which the dividend is received, and

      • (ii) the amount, if any, by which the taxable part exceeds the portion referred to in subparagraph (i) is deemed to be a separate taxable dividend.

  • (5) Subsections (1) to (4) apply to dividends received after April 20, 2015 except that, for dividends received after April 20, 2015 and before April 18, 2016, paragraph 55(5)(f) of the Act, as enacted by subsection (4), is to be read as follows:

    • (f) unless subsection (2.3) applies, if a corporation has received a dividend any portion of which is a taxable dividend

      • (i) the corporation may designate in its return of income under this Part for the taxation year during which the dividend was received any portion of the taxable dividend to be a separate taxable dividend, and

      • (ii) the amount, if any, by which the portion of the dividend that is a taxable dividend exceeds the portion designated under subparagraph (i) shall be deemed to be a separate dividend.

 
Date modified: