May 2019 Newsletter

The Federal government presented its 2019 Budget on March 19, 2019. As usual, there were some significant income tax proposals and amendments. They included the following: 

  • Canada Training Benefit: The Budget introduced a new “Canada Training Benefit” refundable tax credit. This credit is meant to help people who are currently working and who wish to undertake further educational training. The structure of the credit is unique, in that individuals accumulate $250 each year in a notional account, starting 2019. In any taxation year in which you incur eligible tuition fees, you can claim a credit equal to half of the tuition fees, up to a limit of your notional account accumulated for previous years. For example, if you accumulated $250 in each of 2019 and 2020 and incurred $1,200 of tuition fees in 2021, you would get a tax credit of $500 in 2021.

Eligible tuition fees are the same as those that qualify for the tuition tax credit, except that the educational institution must be in Canada. Tuition fees that are effectively refunded through the new credit do not qualify for the tuition tax credit, but any excess tuition fees can qualify for the tuition credit.

Qualified small business corporation shares

The lifetime capital gains exemption allows individuals investing in shares in small business corporations to earn a significant amount of tax-exempt capital gains when they sell the shares. The lifetime limit is indexed annually for inflation. For 2019, the limit is $866,912. Since only one-half of capital gains are included in income as taxable capital gains. the exemption effectively exempts $433,456 of taxable capital gains.

In order to qualify for the exemption, the shares must be qualified small business corporation (QSBC) shares. Various conditions must be met for the shares to qualify. The main conditions are:

Most debt instruments, such as corporate and government bonds and GICs, pay interest at least annually. As such, you normally just report your interest in income in the year in which you receive it or it is receivable by you.

However, some debt instruments do not carry an annual rate of interest, and some are issued at a discount to their face amount. Examples of these instruments include government treasury bills and zero-coupon bonds. Other debt instruments, like certain term deposits, are issued at face value but all of the interest is payable upon maturity rather than annually. For these instruments, a special interest accrual applies.

In order to encourage the hiring of apprentices in certain trades, employers are eligible for the apprenticeship job creation credit if they hire an "eligible apprentice". The credit for a taxation year equals the lesser of $2,000 and 10% of the "eligible salary and wages" payable by the employer to the eligible apprentice for the year in respect of the eligible apprentice's employment in Canada in the year.

Any unused credit may be carried back 3 years and carried forward 20 years.

Wholly dependent person credit disallowed

Normally, you can claim the wholly-dependent person credit for a minor child living with you if you are single (including divorced, separated, or widowed). You cannot claim the credit if you are paying child support for the child to your former spouse. However, if both you and your former spouse are paying each other support, you may be able to claim the credit.

In the recent Bayrack case, the taxpayer and his former spouse had two children. The taxpayer paid his former spouse child support in a year and attempted to claim the wholly dependent person credit in respect of one of the children.

The taxpayer argued that the support court order referred to his payment as a “set-off”, in that it was effectively his obligation to pay support to his former spouse net of her obligation to pay him support. As such, the taxpayer argued, they were both paying each other support such that he could claim the credit.