The Canadian Liberal Finance Minister tabled his first federal budget on March 22, 2016. The focus was on economic growth and job creation as promised during the Liberal election campaign. So no big surprises in the budget but there were some surprising consequences to meeting the election promises, mainly the 3x larger budget deficit which ballooned to $29.4 billion dollars for 2017 fiscal year.
The budget focused on economic growth, job creation and a strong middle class, the minister outlined plans to make investments in infrastructure, health care, postsecondary education, innovation, clean energy, and to introduce a Canada Child Benefit program.
Largest Innovation Funding Program in Canada – SR&ED
There weren’t any changes announced to the Scientific Research & Experimental Development (SR&ED) tax program or Innovation funding (with the exceptions to clean tech mentioned bellow). The SR&ED program will remain steady and provide up to 64% in Investment Tax Credits (ITC) to Canadian corporations.
Bonus: click here to download this 20-page SR&ED Guide to learn everything you need to know to prepare a successful claim.
Federal Corporate Business Tax Rates
The Federal general corporate business tax rates will remain unchanged at 15% for the 2016 year. However, on a positive note the small business tax rate will be lowered by 0.5% to 10.5% of the taxable income for the 2016 year.
Some of the highlights aimed at stimulating economic growth and job creation are as follows:
Investing in Innovation
- An additional $50m in 2016 to the NRC IRAP program
- Up to $2B over three years, starting in 2016, for a new Post-Secondary Institutions Strategic Fund to support up to 50% of the eligible costs of infrastructure projects at post-secondary institutions and affiliated research and commercialization organizations, in collaboration with provinces and territories
- An additional $95m per year, starting in 2016, to granting councils for investigator-led discovery research (Canadian Institutes of Health Research, Natural Sciences and Engineering Research Council, Social Sciences and Humanities Research Council and Research Support Fund)
- Up to $379m over eight years, starting in 2017, for the Canadian Space Agency to extend Canada’s participation to 2024
- $30m over six years to Agri-Food Canada to support advanced research in agriculture genomics
- $800m over four years, starting in 2017, to support innovation networks and clusters as part of the government’s upcoming Innovation Agenda
- $4m over two years to renew the Canadian Technology Accelerator Initiative
- $50m over five years to the National Optics Institute
- $9m in import tariff savings over the next five years through the elimination of tariffs on several manufacturing inputs in the consumer goods and transportation sectors
Clean Tech Investing
- Over $130m over five years to support clean technology research, development and demonstration activities by increasing the funding to Sustainable Development Technology Canada (SDTC) for the SD Tech Funds and Natural Resources Canada (NRC) for clean energy technologies
- $62.5m over two years to Natural Resources Canada to support the deployment for alternative transportation fuels, including charging infrastructure for electric vehicles and natural gas and hydrogen refueling stations
- $20m over eight years, starting in 2018, to create two additional Canada Excellence Research Chairs in fields related to clean and sustainable technologies
- $100m per year to the 6 Regional Development Agencies to support clean technology activities
- $50m over two years to Natural Resources Canada to invest in technologies that will reduce greenhouse gas emissions from the oil and gas sector
- $3.4b over five years to address climate change and air pollution, protect ecologically sensitive areas and restore public trust in the environmental assessment processes
- $2.9b over five years to address climate change and air pollution issues, including establishment of a Low Carbon Economy Fund, support for reduction of emissions in transportation and energy, advancement of science and programming activities to better understand and adapt to the changing climate and to enable decisions to address air pollution
- $19m over five years to Indigenous and Northern Affairs Canada to collaborate with researchers and Inuit communities to gather research and knowledge of the Arctic environment to assess potential environmental impacts of future oil and gas activity in the North
Clean Energy Support
The government has introduced the following measures to encourage investment in technologies that can contribute to a reduction in emissions of greenhouse gases and air pollutants:
- Accelerated capital cost allowance: For assets acquired on or after 22 March 2016 (that have not been used or acquired for use before that time), the budget proposes to expand Classes 43.1 and 43.2 for clean energy generation and conservation equipment. Certain electric vehicle charging stations and electrical energy storage equipment previously included in Class 8 (20% declining balance) will now be eligible for inclusion in Class 43.1 or 43.2 (30% and 50% declining balance, respectively).
- Electric vehicle charging stations set up to supply more than 10 kilowatts of continuous power can be included in an accelerated CCA class along with ancillary equipment such as downstream equipment or equipment used to measure electricity.
- Electrical energy storage equipment has been clarified and expanded to include equipment ancillary to eligible generation equipment, as well as standalone electrical energy storage property, provided that the round trip efficiency of the equipment is greater than 50%. Electrical energy storage property will include equipment such as batteries, flywheels and compressed air energy storage.
- Emissions trading regime: A tax payer in a regulated industry may be required to provide a government with emissions allowances, in respect of its emissions in a particular year, at a true-up date in a subsequent year. These allowances may be purchased by emitters, earned in relation to emissions reduction activities or provided by the government at a reduced amount or no cost. To eliminate uncertainty about the tax treatment of transactions under emissions trading regimes, the government has introduced rules clarifying the tax treatment of emission allowances. These measures will apply on emissions allowances acquired in taxation years beginning after 2016 or on an elective basis for emissions allowances acquired in taxation years ending after 2012.
- Under the new rules, emissions allowances will be treated as inventory for all taxpayers. There will be no income inclusions for the receipt of a free allowance by a regulated emitter. The deduction in respect of an accrued emissions obligation will be limited to the amount by which the obligation exceeds the cost of any emissions allowances acquired by the taxpayer and that can be used to settle the obligation. Each year that a taxpayer claims a deduction in respect of an emissions obligation, it will quantify its obligation based on the cost of emission allowances acquired to settle its obligation and the fair market value of any emissions allowances it needs to obtain to fully satisfy its obligation. Deductions claimed in one year in respect of an emissions obligation to be satisfied in a future year will be brought back into income in the subsequent year and re-evaluated each year until the obligation is satisfied.
- Proceeds received on the disposition of an emissions allowance, otherwise than in satisfaction of an obligation under the emissions allowance regime, and in excess of the taxpayers cost, will be included in computing income.