What the new budget brought for Canadian investors

The Federal Government recently put forth a new budget for 2017/18.  For the most part the budget was a bit of a snoozer, but there were some items that are worth addressing.

You may have heard about the extension of parental leave to 18 months following the birth of a child, which will come at a lower Employment Insurance benefit rate of 33%. Also, the public transit tax credit has been eliminated, while they have imposed the HST/GST on ride-sharing services, like the ones offered by UBER. In addition, there were slight increases in “sin” taxes of alcohol and tobacco sales.

The changes in taxation which drew most attention from an investor’s point of view were the expectations that there would be changes to the capital gains tax rate. There was some concern that the federal government would increase the capital gains tax inclusion rate to 100% from the current 50%. Canadians were relieved that this was not changed in the current budget.

But there were worrying changes to the Canadian Exploration Expense under which exploration expenses of oil, gas and mining companies could be written off in the year they were incurred. The expenses will now be amortized at a rate of 30% per year. Earlier, investors could deduct from their incomes the cost of so-called flow-through shares issued by exploration companies to incur Canadian Exploration Expense. But now, because the rate of deduction of development expenses has been lowered, flow-through mechanism will be less popular. Moreover, starting in 2019, these development expenses will no longer be available for renunciation to investors under the flow-through share rules. These measures threaten to reduce investment in exploration-stage mining, oil and gas projects even further, after several years of decline.

Mineral Exploration and Deposit Appraisal Expenditures in Canada

Source: nrcan.gc.ca

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