FEDERAL 2019 BUDGET - Impact on Canada’s Professionals

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The federal government tabled its fourth budget on March 19, projecting a $19.8-billion deficit for the next fiscal year on weaker economic growth. Budget 2019 contained no changes to personal or corporate tax rates, a relief for professionals who have seen four years of unfavorable tax changes, from limits in the small business deduction to revamped rules around passive income.

Budget 2019 did include five key announcements which may impact professionals in Canada. Topping the list for many was the federal government commitment to review tax rules around intergenerational business transfers.

INTERGENERATIONAL BUSINESS TRANSFERS

Currently, professionals get a better deal and more after-tax cash by selling their practice to an arm’s length party when compared to transitioning it to a family member. This is because there are limitations on claiming the lifetime capital gains exemption if you sell the shares of your practice to a family member.

The federal government said it will continue consultations with business owners over the year to develop new ways to level the playing field between intergenerational transfers and third-party sales.

SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT

The budget also proposed increasing access to refundable tax credits for research and development projects by eliminating taxable income as a factor in calculating eligibility. Under the Scientific Research and Experimental Development (SR&ED) program, Canadian controlled private corporations can generate refundable tax credits on qualifying annual expenditures of up to $3 million. The expenditure limit is phased out based on taxable income for the previous year being between $500,000 and $800,00 and where taxable capital employed in Canada is between $10 million and $50 million.

Eliminating the use of taxable income would provide refundable tax credits to small CCPCs, regardless of the level of taxable income. This measure will apply to taxation years that end on or after March 19, 2019.

GST / HST FOR MULTIDISCIPLINARY HEALTH CARE TEAMS

Health care professionals often provide services as part of a multidisciplinary team, such as a physician, an occupational therapist and a physiotherapist assessing and administering a rehabilitation program.

Where each of the individual services are rendered by health care professionals, they would generally be exempt from GST / HST. However, under current GST / HST legislation, there are no explicit rules that exempt the service of multidisciplinary health care teams.

Budget 2019 proposes to provide an explicit exemption for health care services provided by a multidisciplinary team of health care professionals. The exemption will be available where all or substantially all of the service is rendered by such health care professionals acting within the scope of their profession. This measure will apply to services rendered after March 19, 2019.

CANADA TRAINING CREDIT

Professional development efforts received a $250-per-year boost through the Canada Training Benefit introduced in Budget 2019. The new benefit includes a refundable tax credit to support eligible tuition and fees associated with training.

Eligibility for the tax credit includes being between 25 and 65 years old, a resident of Canada throughout the year and having income of between $10,000 - $147,667 in 2019.

INCREASED LIMIT FOR FIRST-TIME HOME BUYERS

The federal government proposed increasing the amount first-time home owners can take out of their registered savings to $35,000 from $25,000. This increase will also apply to buying an accessible home for someone eligible for the disability tax credit, even if not a first-time home buyer.

While Budget 2019 did not propose or impose major tax changes, having consistency can be considered a positive for professionals beset with less than positive tax rule changes. This time can be taken to revisit your tax strategy and corporate structure – and plan for continued success.

Read MNP’s full Federal Budget 2019 Summary

For more information, contact Nick Korhonen, CPA, CA, National Tax Leader, Professional Services, at 613.691.4200 or [email protected]