Budget 2001 - Budget Plan
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Annex 7
Tax Measures:
Supplementary Information and Notice of Ways and Means Motion

Table of Contents

Tax Measures: Supplementary Information.

• Overview.
• Personal Income Tax Measures.
• Business Income Tax Measures.
• Other Measures.

Measures to Enhance Tax Fairness and Achieve Economic and Social Objectives (1994 – 2001).

• General Tax Relief.
• Families and Seniors.
• Education and Skills.
• Tax Assistance for Charities and Public Institutions.
• Persons With Disabilities.
• Personal Income Tax Measures to Better Target Tax Preferences.
• Business Income Tax Measures to Better Target Tax Preferences.
• Sales and Excise Tax Measures to Better Target Tax Preferences.
• Simplifying and Improving Tax Administration and Enforcement.

Notice of Ways and Means Motion.

• Notice of Ways and Means Motion to Amend the Income Tax Act.

Tax Measures:  
Supplementary Information

Overview

This annex provides detailed information on each of the tax measures proposed in this budget.

Table A7.1 lists those measures that are proposed to be legislated pursuant to the 2001 budget and provides estimates of their budgetary impact.

This annex also provides a detailed listing of measures that have been introduced since 1994 that enhance tax fairness and achieve economic and social objectives.

Finally, this annex provides a Notice of Ways and Means Motion to amend the Income Tax Act.

Table A7.1
Federal Revenue Impact of Proposed Measures

Personal Income Tax Measures

Apprentice Vehicle Mechanics’ Tools Deduction

Individuals employed as apprentice vehicle mechanics must typically provide their own tools for the on-the-job component of their apprenticeship. The cost of these tools is high in relation to their apprenticeship income and, consequently, can constitute a barrier to entering the trade.

The budget proposes to provide an income tax deduction for the extraordinary portion of the cost of new tools acquired by apprentice vehicle mechanics after 2001. To be eligible for this employee expense deduction, the tools must be acquired while the apprentice is registered with a provincial or territorial body in a program leading to designation as a mechanic licensed to repair automobiles, aircraft, or any other self-propelled motorized vehicles. Also, the apprentice’s employer must certify that the tools are required as a condition of, and for use in, the apprenticeship.

The amount of the deduction will be the total cost of new tools acquired in a taxation year, less the greater of $1,000 and 5 per cent of the individual’s apprenticeship income for the year. Any part of the eligible deduction that is not taken in the year in which the tools are acquired can be carried forward and deducted in subsequent taxation years.

The cost of the individual’s tools for other income tax purposes will be the acquisition cost less the deductible portion of that cost. If an individual (or a non-arm’s-length person) disposes of the tools for proceeds in excess of this reduced cost, the excess amount will be included in income in the year of disposition. However, tools will be eligible for the existing rollovers that apply to transfers of property to a corporation or a partnership.

The individual will also be eligible for a rebate of the goods and services tax/harmonized sales tax paid on the portion of the purchase price of the new tools that is deducted in computing employment income.

These measures will apply to the 2002 and subsequent taxation years.

Adult Basic Education – Tax Deduction for Tuition Assistance

Basic education is primary or secondary level education or other forms of training that do not currently qualify for the tuition tax credit. Some adult students who take basic education to upgrade their skills receive direct financial assistance from governments to pay their tuition fees. This tuition assistance must be included in income, and the tuition fees do not qualify for any tax relief.

The budget proposes that individuals May deduct, in computing their taxable income, the amount of tuition assistance received for adult basic education that has been included in their income. In order to be eligible, the tuition assistance must be provided under:

• Part II of the Employment Insurance Act (or a similar program provided by a province or territory under a Labour Market Development Agreement); or
• another training program established under the authority of the Minister of Human Resources Development, such as the Employability Assistance for People with Disabilities initiative or the Opportunities Fund for Persons with Disabilities.

This measure will apply to eligible tuition assistance received after 1996. Administrative procedures will be established over the coming months to enable individuals who received eligible tuition assistance before 2001 to recover the income taxes paid, or to eliminate the income taxes owing, on these amounts.

Extending the Education Tax Credit

The education tax credit helps students defray non-tuition costs of post-secondary education and training, such as textbooks. The education amounts – the amounts used to calculate the education tax credit – were doubled in the October 2000 Economic Statement and Budget Update to $400 per month of full-time study and $120 per month of part-time study.

The education tax credit cannot currently be claimed by students who receive financial assistance for post-secondary education under government training programs. The budget proposes to extend access to the education tax credit to students who receive taxable assistance for post-secondary education under:

• Part II of the Employment Insurance Act (or a similar program provided by a province or territory under a Labour Market Development Agreement); or
• another training program established under the authority of the Minister of Human Resources Development, such as the Employability Assistance for People with Disabilities initiative or the Opportunities Fund for Persons with Disabilities.

This measure will apply to the 2002 and subsequent taxation years.

Promoting Sustainable Woodlot Management

Currently a taxpayer May make an intergenerational transfer of farm property in Canada on an income tax-deferred rollover basis, if the property was principally used in a farming business in which the taxpayer or a family member was actively engaged on a regular and continuous basis. Similar rules apply to intergenerational transfers of shares of family farm corporations and interests in family farm partnerships.

The operation of a commercial woodlot may, in certain circumstances, constitute a farming business. However, the intergenerational rollovers are generally not available for commercial woodlots because, aside from monitoring, the management of a woodlot May not demand regular and continuous activity. As a result, many commercial woodlot owners are currently subject to income tax on intergenerational transfers of their woodlots. This can be detrimental to the sound management of the resource if woodlots are harvested prematurely to pay the tax.

The budget proposes to facilitate intergenerational rollovers of commercial woodlot operations that are farming businesses. Where the regular and continuous activity test set out in the existing rollover rules cannot be met, a new test will be implemented strictly for the purpose of applying those rules to commercial woodlot operations. The new test will allow an intergenerational rollover where the conditions of the existing rollover rules are otherwise met and the transferor or a family member is actively involved in the management of the woodlot to the extent required by a prescribed forest management plan.

Specific criteria for prescribed forest management plans will be developed in consultation with interested parties. For transfers that occur before these criteria are developed and prescribed, it will be required that a plan exist providing for the necessary attention to a woodlot’s growth, health, quality and composition.

This measure will apply to transfers that occur after December 10, 2001.

Donations of Certain Publicly Traded Securities to Charities

On October 12, 2001, the Government announced its intention to make permanent the 1997 budget measure that provides special tax assistance for donations of certain securities to public charities. This measure was originally scheduled to expire on December 31, 2001.

Under the measure, the amount included in the income of a donor for capital gains tax purposes arising from donations of eligible securities to public charities is one-half the amount included for other capital gains. Eligible securities are shares, debt obligations and rights listed on a prescribed stock exchange, shares of the capital stock of mutual fund corporations, units of mutual fund trusts, interests in certain segregated fund trusts, and prescribed debt of, or guaranteed by, Canada or a province. This measure has helped to significantly increase donations of securities over the past five years. Making it permanent will support the important work of charities in meeting the needs of Canadians.

The Government also proposes to make permanent the 2000 budget measure that reduces the tax on employment benefits in respect of donations of eligible securities acquired through stock option plans, to parallel the treatment for donations of eligible securities.

As previously announced, the Government intends to continue to work with the charitable sector to determine whether there is an appropriate and cost-effective basis for broadening this measure beyond its current application.

Goods and Services Tax Credit Responsiveness

The goods and services tax credit (GSTC) helps to offset the impact of the GST on low- and modest-income Canadians. The GSTC is paid quarterly over the 12-month period (the benefit year) beginning each July. Currently the GSTC is calculated on the basis of income and family information provided as of the end of the previous calendar year, six months before the beginning of the benefit year. As a result, the GSTC for a particular benefit year does not respond to changes in family circumstances that occur after the end of the previous calendar year. For GSTC purposes, changes in family circumstances include events such as births, deaths, marriages, reaching the age of 19 years, and becoming or ceasing to be resident in Canada.

The Government announced in the 1999 budget that the Department of Finance and the Canada Customs and Revenue Agency would work together to improve the responsiveness of the GSTC and streamline its administration. This budget confirms that, beginning with benefits payable for July 2002, an individual’s GSTC entitlement for a quarter will be based on the individual’s family circumstances at the end of the preceding quarter.

Business Income Tax Measures

Improvements to the Tax Incentives for Renewable Energy and Energy Efficiency

Under the capital cost allowance (CCA) regime, Class 43.1 describes certain renewable energy and energy efficiency equipment that qualifies for an accelerated CCA rate of 30 per cent. This class provides an incentive for new investments that will help Canada meet its environmental objectives.

Since Class 43.1 was introduced in the 1994 budget, the Government has expanded eligibility for this class on several occasions to further encourage investments in renewable energy and energy conservation projects.

The budget proposes to increase the upper limit on the size of small hydro-electric projects that qualify for Class 43.1 to a maximum annual rated capacity of 50 megawatts (MW), from the current limit of an annual average generating capacity of 15MW. This change will encourage investment in small hydro-electric projects, including new run-of-the-river projects, and complement provincial initiatives that have provided further opportunities for power producers to invest in small hydro-electric projects. The change will apply to property acquired after December 10, 2001.

Class 43.1 also includes property that is part of a system that generates electrical energy and that has a heat rate attributable to fossil fuel of less than 6000 BTU per kilowatt-hour of electrical energy generated by the system. It is proposed that "blast furnace gas", which is a by-product of the steel manufacturing process, be included in the definition of fossil fuel. This change will encourage an energy efficient use of blast furnace gas by steel mills, and will be effective for property acquired after 2000.

Finally, because of rapid changes in technology in this area, the Government intends to consult with industry to determine whether additional improvements are required for this CCA class. In this context, the Government will also explore whether a more streamlined process could be implemented to determine new types of projects that would be eligible for Class 43.1.

Deferral of Corporate Tax Instalments for Small Businesses

Many small businesses are facing additional challenges as the economy has slowed. In order to provide a cash flow benefit to small corporations, the budget proposes to defer payment of their federal corporate tax instalments for the months of January, February and March 2002 for a period of at least six months, without payment of interest or the assessment of penalties.

Corporations will qualify for this instalment deferral if they are resident in Canada and did not have more than $15 million of taxable capital employed in Canada in the previous taxation year. A corporation that is considered for income tax purposes to be associated with other corporations will be eligible only if the taxable capital employed in Canada of all of the associated corporations did not exceed $15 million in the previous year. Both federal income and capital tax instalments will be deferred.

In respect of provinces that have a corporate tax collection agreement with the federal government, eligible corporations will also be able to defer their provincial income tax instalments for the same period. Provincial tax revenues will not be affected as the federal government pays provinces that have entered into tax collection agreements on an assessment basis, rather than on a collections basis.

Corporations must make their final payment of taxes owing for a taxation year two or three months after the end of that year (the balance-due day). To ensure that all small corporations effectively benefit from at least a six-month deferral of their January, February and March 2002 instalments, the balance-due day will be extended in circumstances where it would have otherwise occurred before a deferred instalment payment.

Also, to reduce administrative and compliance complexity, any deferred instalment payment that would otherwise be payable after year-end, but before the balance-due day for the year, will be due only on the balance-due day.

The following table sets out the schedule for the deferral of instalments and the deadline for making balance-due day payments.

Schedule for Deferred Tax Instalments and Balance-Due Day

Farm Credit Canada (FCC) is a federal Crown corporation that provides specialized financial services to farming operations. It is Canada’s largest term lender to primary producers and small- to medium-sized agribusiness. Currently FCC is prescribed as one of the federal Crown corporations that is subject to federal income tax.

The budget proposes that, for taxation years that begin after December 10, 2001, FCC not be subject to federal income and capital taxes. This change will provide the same tax treatment for FCC as is provided for Export Development Corporation and the Business Development Bank of Canada, two other federal Crown corporations that provide specialized financial services.

Venture Capital – Partnerships

The budget proposes two measures to facilitate the use of limited partnerships by tax-exempt and foreign investors in structuring their venture capital investments.

Qualified Limited Partnerships

Currently a limited partnership structure May be unattractive to pension funds and other tax-exempt investors because interests in limited partnerships are generally treated as foreign property for the purposes of the income tax rules that limit the amount of foreign property that a deferred income plan can hold.

The Income Tax Regulations provide several exceptions to the characterization of limited partnership investments as foreign property, including an exception for qualified limited partnerships (QLPs). One of the conditions for eligibility as a QLP is that no limited partner, or non-arm’s-length group of limited partners, May hold more than a 30-per-cent interest in the partnership. This ownership limitation has been identified as a potential impediment to venture capital investment by tax-exempt entities in Canada.

To remove this potential impediment, the budget proposes to eliminate the 30-per-cent ownership limitation for QLPs. Accordingly, a limited partnership May be a QLP even though a limited partner, either alone or as part of a non-arm’s-length group, has more than a 30-per-cent ownership interest in the partnership. However, for the purpose of the foreign property rules, any limited partner or group that holds more than a 30-per-cent interest in a QLP will be treated as owning a proportionate interest of each property owned by the QLP, including any foreign property. An ownership interest of 30 per cent or less in a QLP will remain exempt from treatment as foreign property.

This measure will apply after 2001.

Use of Canadian Investment Managers

The budget also proposes to make it easier for non-residents who invest through partnerships to retain Canadian investment managers and advisors.

In general, Canada taxes non-residents on their income from sources in Canada, including income from carrying on a business in Canada. Section 115.2 of the Income Tax Act is an interpretive rule which ensures that, provided certain conditions are met, a "qualified non-resident" is not considered to be carrying on business in Canada solely because it engages a Canadian firm to provide certain investment management and administration services.

Currently a partnership is a "qualified non-resident" only if none of its members is resident in Canada. Thus a partnership that has some non-resident members cannot rely upon the assurance that section 115.2 provides. This lack of certainty has been identified as a potential impediment to venture capital investment in Canada.

The budget proposes to clarify how section 115.2 applies to partnerships and their members, and to enable the non-resident members of a partnership to avail themselves of the assurance provided by the section. First, the definition "qualified non-resident" will be changed so that it will no longer include a partnership, but will instead apply separately to each partner. Second, the rule will be changed to provide that a "qualified non-resident" is not considered to carry on business in Canada solely because a Canadian resident provides investment management and administration services to the non-resident or to a partnership of which the non-resident is a member. It should be noted that this assurance extends only to the non-resident partners: a partner who is resident in Canada is not a "qualified non-resident" and cannot benefit from section 115.2.

These changes to section 115.2 will apply to the 2002 and subsequent taxation years.

Construction Work Camps

Generally, only 50 per cent of otherwise deductible business expenses for meals or entertainment are deductible for income tax purposes. This limitation reflects the personal consumption element of these expenses. However, the 1998 budget introduced an exception to this rule to allow full deductibility for the reasonable cost of meals incurred by employers in respect of employees working at certain "semi-remote" work sites. In order to qualify under this exception, a work site must be at least 30 kilometres from the nearest urban area of at least 40,000 people, and the employee cannot be expected to return home daily.

This exception may not address situations where, given the large size and short duration of a construction project, the local infrastructure of an urban area having a population of more than 40,000 is insufficient to support a large temporary workforce. In such a case, employers May establish a temporary work camp to provide meals and accommodation at or near the construction site. The budget proposes to allow full deductibility for the cost of meals provided to an employee housed at a temporary work camp constructed or installed specifically for the purpose of providing meals and accommodation to employees working at a construction site. It will also be required that the employee cannot be expected to return home daily.

The goods and services tax/harmonized sales tax (GST/HST) follows the income tax rules in its treatment of meal expenses. Accordingly, 100 per cent of the GST/HST paid or payable by an employer on the cost of fully deductible meals provided at a qualifying construction work camp will be recoverable by the employer as input tax credits.

This measure will apply to expenses incurred after 2001.

Other Measures

First Nations Taxation

In each budget since 1997, the Government expressed its willingness to put into effect taxation arrangements with interested First Nations. To date, the Government has entered into taxation arrangements allowing seven First Nations to levy a tax on sales on their reserves of fuel, tobacco products and alcoholic beverages. In addition, personal income tax collection and sharing agreements have been entered into with the seven self-governing Yukon First Nations. The Government is once again expressing its willingness to discuss and to put into effect arrangements in respect of direct taxation with interested First Nations.

Measures to Enhance Tax Fairness and Achieve Economic and Social Objectives
(1994 – 2001)

General Tax Relief

• Increased the amount of income that low-income Canadians can receive on a tax-free basis by $500.
• Eliminated the 3-per-cent general surtax for taxpayers with incomes up to about $50,000 and reduced the amount for those with incomes between $50,000 and $65,000.

• Extended the $500 increase in the amount of income that can be received on a tax-free basis to all Canadians, and increased it for all Canadians by an additional $175, for a total of $675.
• Eliminated the 3-per-cent general surtax for all remaining taxpayers for whom the surtax was not removed in the 1998 budget.

• Restored full indexation of the tax system.
• Reduced the middle tax rate from 26 per cent to 24 per cent.
• Eliminated the 5-per-cent deficit-reduction surtax for income up to about $85,000 and announced that the rate would be reduced to 4 per cent.
• Reduced the capital gains inclusion rate from three-quarters to two-thirds.
• Permitted a rollover of capital gains on the disposition of qualified small business investments.
• Allowed deferral of the income inclusion from exercising qualifying stock options until disposition.
• Reduced the general corporate income tax rate from 28 per cent to 27 per cent.
• Reduced the corporate tax rate on income between $200,000 and $300,000 earned by a Canadian-controlled private corporation from an active business carried on in Canada from 28 per cent to 21 per cent.

• Reduced personal income tax rates:
  • lowered the 17-per-cent rate to 16 per cent;
  • lowered the 24-per-cent rate to 22 per cent;
  • lowered the 29-per-cent rate to 26 per cent on income between $61,509 and $100,000; and
  • eliminated the deficit-reduction surtax.

• Reduced the capital gains inclusion rate from two-thirds to one-half.
• Expanded the rollover of capital gains on the disposition of qualified small business investments, with the amount of the rollover raised from $500,000 to $2 million and the size of business eligible for the rollover raised from $10 million to $50 million.
• Implemented the schedule for reducing the general corporate income tax rate to 21 per cent by 2004.
• Legislated to provide that by 2004:
  • the basic personal amount, the amount an individual can earn tax-free,  will be at least $8,000;
  • the spousal amount will be at least $6,800;
  • the second bracket threshold will be at least $35,000;
  • the third bracket threshold will be at least $70,000; and
  • the fourth bracket threshold will be at least $113,804.

Families and Seniors

• Introduced new tax treatment of child support payments, with payments non-deductible for the payer and non-taxable for the recipient.
• Announced a two-step $250-million enrichment of the Working Income Supplement (WIS) of the Child Tax Benefit (CTB).
• Replaced the seven-year limit by an unlimited carry-forward of unused registered retirement savings plan (RRSP) room.

• Announced a new Canada Child Tax Benefit (CCTB) by simplifying and enriching the current CTB starting July 1998 with an $850-million supplement for low-income families.
• Enriched the WIS from the $125 million announced in the 1996 budget to $195 million and restructured it from a per-family to a per-child basis.

• Increased the limits to $7,000/$4,000 under the child care expense deduction.
• Enriched the supplement under the CCTB by another $425 million on July 1, 1999, and a further $425 million on July 1, 2000.
• Removed contributions to RRSPs and registered pension plans (RPPs) from the base for the alternative minimum tax.

• Set the design for the $850-million increase in the CCTB supplement amount in the 1998 budget.
• Enriched the CCTB by $300 million in July 2000 to enhance benefits for modest-and middle-income families.
• Ensured that the maximum goods and services tax credit (GSTC) supplement is provided to low-income single-parent families.
• Allowed greater flexibility to transfer RRSP and registered retirement income fund (RRIF) proceeds to financially dependent children upon the death of the RRSP/RRIF owner.

• Introduced changes to the CCTB:
  • increased the CCTB base benefit by $70 per child in July 2000; and
  • increased the National Child Benefit (NCB) supplement by $200 per child in July 2001.

• Introduced changes to the CCTB:
  • increased the NCB supplement by an additional $100 per child in July 2001; and
  • increased the income threshold at which the NCB supplement is fully phased out and the base benefit begins to be phased out to $32,000 in 2001.

• Legislated that by 2004:
  • the amount of family net income at which the CCTB phase-out begins will be at least $35,000; and
  • the phase-out rate of the base benefit of the CCTB will be reduced from 5 per cent to 4 per cent (from 2.5 per cent to 2 per cent for families with one child).

Education and Skills

• Increased the amount used to establish the education credit from $80 per month to $100 per month.
• Raised the annual limit on the transfer of the tuition and education amounts to those who support students from $4,000 to $5,000.
• Increased the annual limit on contributions to registered education savings plans (RESPs) from $1,500 to $2,000, and the lifetime limit from $31,500 to $42,000.
• Broadened eligibility for the child care expense deduction to assist parents who undertake education or retraining.

• Doubled the amount used to establish the education credit over two years to $200 per month.
• Made ancillary fees, such as health services and athletics, eligible for the tuition credit.
• Allowed a carry-forward of unused tuition and education credits.
• Increased annual contribution limits for RESPs from $2,000 to $4,000.
• Allowed transfers of RESP funds to an RRSP or to the contributor.

• Provided a Canada Education Savings Grant of 20 per cent on annual contributions of up to $2,000 to an RESP, along with carry-forward flexibility.
• Introduced a tax credit for interest on student loans.
• Allowed RRSP withdrawals for lifelong learning.
• Enhanced tax support for part-time education through the education credit and the child care expense deduction.

Increased the partial annual exemption from $500 to $3,000 for scholarship, fellowship or bursary income.

• Doubled the amount used to establish the education credit from $200 per month to $400 per month for full-time students and from $60 per month to $120 per month for part-time students.

• Removed certain undue restrictions on the goods and services tax/harmonized sales tax (GST/HST) exemption for vocational training and extended the exemption to situations where the training is provided by a government department or agency.

• Proposing measures to exempt from income tax government tuition assistance for adult basic education.
• Proposing to extend the education tax credit to individuals who receive taxable assistance for post-secondary education under certain government programs, including employment insurance.
• Proposing to allow apprentice vehicle mechanics to deduct a portion of tool expenses incurred as a condition of apprenticeship.

Tax Assistance for Charities and Public Institutions

• Lowered the threshold at which charitable donations begin to earn the 29-per-cent tax credit from $250 to $200.

• Removed the income limit for tax credits on donations of ecologically sensitive lands.

• Increased the limits on charitable donations eligible for tax credits from 20 per cent to 50 per cent of net income, and to 100 per cent of net income in the year of death and the preceding year.
• Expanded zero-rating of hospital beds to all health care facilities, including long-term care facilities.
• Allowed most charitable and public organizations to raise funds without collecting and remitting GST on sales.
• Provided a 100-per-cent GST rebate on books purchased by public libraries, educational institutions and other specified bodies.

• Provided a half-inclusion rate on capital gains arising from donations made before 2002 of certain publicly traded securities.
• Raised the income limit for donations from 50 per cent to 75 per cent.
• Allowed 25 per cent of capital cost allowance (CCA) recapture of donated property to be included in the net income limit.
• Sanctioned a new method of valuation for easements of ecologically sensitive lands.
• Increased resources for Revenue Canada to enhance information and compliance from charities.
• Simplified GST accounting, reporting and remittance requirements for charities.

• Increased tax-free allowances for emergency service volunteers.
• Allowed designated charities to treat certain services they supply to business customers as GST/HST taxable, thereby allowing charities to compete on an equal footing with other suppliers.
• Provided equivalent GST/HST treatment to charities operating authorized bottle return depots vis-à-vis commercial operators.

• Reduced tax on employment benefits in respect of donations of shares acquired through stock option plans to parallel treatment for donations of certain publicly traded securities.
• Extended the charitable donations tax credit to donations of RRSP, RRIF and insurance proceeds that are made as a consequence of direct beneficiary designations.
• Reduced capital gains income inclusion by one-half in respect of gifts of ecologically sensitive land and related easements, covenants and servitudes.

• Proposing to make permanent the measure providing a half-inclusion rate on capital gains arising from donations of certain publicly traded securities to public charities.

Persons With Disabilities

• Enriched the tax credit for infirm dependants.
• Expanded zero-rating of orthopaedic and orthotic devices under the GST.
• Extended GST relief on purchases of vehicle modifications necessary for people with disabilities.

• Broadened the medical expense tax credit.
• Removed the limit on the attendant care deduction.
• Introduced a refundable medical expense tax credit supplement for earners.
• Broadened the definition of preferred beneficiary for trusts benefiting persons with disabilities.

• Introduced a new tax credit for caregivers for in-home care of related seniors and persons with disabilities.
• Extended the Home Buyers’ Plan to persons with disabilities.
• Added training expenses for caregivers to the list of expenses eligible for the medical expense tax credit.
• Allowed certification for the disability tax credit (DTC) by occupational therapists and psychologists.
• Exempted respite care services from the GST/HST.

• Expanded the medical expense tax credit.

• Extended eligibility for the DTC to individuals requiring extensive therapy.
• Expanded the list of relatives to whom the DTC can be transferred.
• Provided additional tax assistance for families caring for children with severe disabilities by introducing a $2,941 supplement for children eligible for the DTC.
• Increased the maximum child care expense deduction available in respect of persons eligible for the DTC from $7,000 to $10,000.
• Extended income tax assistance for expenses relating to the costs of adapting a new home to the needs of a disabled person.
• Expanded the attendant care deduction to include the cost of an attendant required in order to attend school.

• Increased the DTC amount from $4,293 to $6,000 effective January 1, 2001.
• Increased the caregiver tax credit amount from $2,386 to $3,500 effective January 1, 2001.
• Increased the infirm dependant tax credit amount from $2,386 to $3,500 effective January 1, 2001.
• Increased the amount for the supplement to the DTC for children with severe disabilities from $2,941 to $3,500 effective January 1, 2001.

Personal Income Tax Measures to
Better Target Tax Preferences

• Eliminated the $100,000 lifetime capital gains exemption.
• Extended the base for the alternative minimum tax.
• Restricted the use of tax shelters.
• Extended the taxation of employer-paid life insurance premiums to the first $25,000 of coverage.
• Introduced income testing of the age credit.

• Eliminated tax advantages available through trusts.
• Reduced the overcontribution allowance for RRSPs from $8,000 to $2,000.
• Capped the money purchase RPP and RRSP dollar limits at $13,500 through 2002 and 2003 respectively.
• Eliminated the retiring allowance rollovers for years of service after 1995.
• Eliminated double claims of personal credits in the year of personal bankruptcy.

• Announced new rules on taxpayer migration to ensure that gains that accrue while a taxpayer is a resident of Canada are subject to Canadian tax.
• Capped the maximum pension limit for defined benefit RPPs at $1,722 per year of service until 2005 (only affecting individuals earning over $75,000).
• Reduced the maximum age limit for deferring tax on savings in RRSPs and RPPs from age 71 to 69.
• Further constrained tax shelters relying on a mismatch of income and expenses.

• Allowed deductibility of health and dental premiums for the self-employed.
• Expanded the remote worksite concept.
• Clarified the tax treatment of relocation expenses.
• Strengthened the integrity of the certified cultural property regime.
• Expanded rules regarding employee options to allow the acquisition of units of mutual fund trusts.

• Introduced a measure to prevent income splitting with minors.
• Proposed to address deficiencies in the rules governing the taxation of income earned through investments in foreign-based investment funds and transfers to non-resident trusts.
• Introduced special rules for the treatment of retroactive lump-sum payments.
• Provided more equitable treatment of income earned by communal organizations.

• Reduced the federal surtax on income not earned in a province from 52 per cent of basic federal tax to 48 per cent.
• Removed the $1,000 deemed adjusted cost base and proceeds of disposition for personal-use property acquired as part of an arrangement in which the property is donated.

• Provided one-time relief for heating expenses of $125 for individuals and $250 for families eligible for the GST credit for January 2001.
• Introduced a temporary federal investment tax credit at a rate of 15 per cent for mineral exploration expenses incurred in Canada pursuant to a flow-through share agreement.

• Proposing to extend the existing intergenerational income tax-deferred rollover for farm property to commercial woodlots.

Business Income Tax Measures to
Better Target Tax Preferences

• Eliminated, for large private corporations, both the small business deduction and the enhanced scientific research and experimental development (SR&ED) benefits.
• Reduced the deduction for business meals and entertainment expenses from 80 per cent to 50 per cent to better reflect the personal consumption element of these expenditures.
• Increased the rate of tax on corporate dividends received by private investment corporations.
• Implemented measures to ensure that the income of financial institutions is measured appropriately for tax purposes.
• Eliminated the preference for sole-purpose SR&ED performers.
• Reduced regional investment tax credits.
• Modified the basis upon which insurance companies may claim reserves for income tax purposes.
• Ensured corporations cannot avoid paying tax when selling assets through "purchase butterfly" transactions.
• Tightened the rules applicable to foreign affiliates.
• Tightened the rules applicable on forgiveness of debt.

• Increased the large corporations tax (LCT) and corporate surtax.
• Introduced a temporary capital tax surcharge on large deposit-taking institutions.
• Eliminated the deferral of tax on unincorporated business income.
• Eliminated the deferral advantage for investment income earned by private holding companies.
• Replaced the film tax shelter mechanism for certified Canadian films with a tax credit.
• Tightened the rules relating to non-arm’s-length contract SR&ED.
• Introduced a voluntary measure for construction industry reporting.
• Tightened the rules concerning superficial losses.

• Extended the capital tax surcharge on large deposit-taking institutions.
• Reduced tax assistance for labour sponsored venture capital corporations (LSVCCs).
• Tightened the resource allowance rules.
• Repealed joint exploration corporation rules.
• Restricted eligibility of various expenses for flow-through share treatment.
• Enhanced incentives to invest in renewable energy.
• Limited SR&ED benefits for non-arm’s-length salaries and wages.

• Extended the capital tax surcharge on large deposit-taking institutions.
• Replaced tax shelters used to finance non-Canadian films with a tax credit.

• Extended the capital tax surcharge on large deposit-taking institutions.
• Allowed deductibility of countervailing duties and anti-dumping charges.
• Allowed more time for year-end distributions for mutual fund trusts.
• Harmonized financial institution designation for the LCT and other purposes.
• Allowed an earthquake reserve deduction.
• Prevented unintended benefits under the SR&ED regime.
• Improved a range of international taxation rules.

• Extended the capital tax surcharge on large deposit-taking institutions.
• Ensured that electricity generating activities are taxed equitably.
• Clarified the tax status of non-resident funds that retain Canadian service providers.
• Updated rules governing LSVCCs to ensure consistency with provincial programs and address issues relating to corporate restructuring.
• Improved CCA rules to encourage the productive use of flare gas.

• Modified the thin capitalization rules to work more effectively.
• Repealed the non-resident-owned investment corporation provisions.
• Modified the treatment of provincial deductions for SR&ED that exceed the actual amount of the expenditure.
• Clarified the treatment of weak currency borrowing as equivalent to a direct borrowing in the currency that is used by the taxpayer to earn income.
• Clarified foreign tax credit rules and rules regarding the deductibility of foreign exploration and development expenses.
• Extended the manufacturing and processing (M&P) tax credit to corporations that produce, for sale, steam for uses other than the generation of electricity.
• Proposed adjustments to improve the CCA system for certain rail assets; M&P equipment; certain electrical generating equipment; and heat/water production and distribution equipment.

• Allowed self-employed individuals to deduct the portion of Canada Pension Plan and Quebec Pension Plan contributions representing the employer’s share, beginning January 2001.

• Proposing to defer the January, February and March 2002 corporate tax instalments for small businesses.
• Proposing to expand the class of renewable energy and energy efficient equipment eligible for accelerated depreciation.
• Proposing to remove tax-related impediments to venture capital investment in Canada through the use of partnerships by Canadian pension plans and by foreign investors.
• Proposing to allow full deductibility of meals provided at temporary construction work camps.

Sales and Excise Tax Measures to
Better Target Tax Preferences

• Tightened the GST rules governing the claiming of input tax credits and rebates by large businesses and exempt entities.
• Reinforced the GST rules relating to trusts, estates and partnerships to ensure fair and consistent treatment of similar businesses that are organized differently.
• Refined the criteria for businesses to be treated for GST purposes as being in competition with financial institutions.
• Permitted warranty companies to recover GST paid on reimbursements to warranty holders.
• Extended the GST accommodation rebate for visitors to Canada to non-resident businesses.
• Expanded zero-rating and rebate provisions for exported goods and services.
• Tightened the GST real property rules to ensure that all builders of multiple-unit residential buildings are treated equitably.

• Enhanced the GST/HST Visitor Rebate Program.
• Enhanced the alternate collection mechanism under the GST/HST for direct sellers.

• Introduced a GST/HST rebate for multi-employer pension plans to provide comparable sales tax treatment relative to single-employer pension plans.

• Introduced a new export distribution centre program to relieve the GST/HST cash-flow burden.
• Introduced a GST rebate, equal to 2.5 percentage points of tax, for newly constructed, substantially renovated or converted residential rental accommodation not eligible for an existing rebate.
• Reduced the annual exemption from the excise tax on tobacco exports from 2.5 per cent to 1.5 per cent of production.

• Expanded the GST/HST new housing rebate to include bed and breakfast establishments.
• Enabled a person to return purchased real property to the vendor within one year of purchase and recover the tax paid under the original contract.

• Proposed adding industrial hemp seed to the list of tax-free agricultural products under the GST/HST.
• Proposed adding a blood substitute product known as plasma expander to the list of tax-free goods under the GST/HST.
• Proposed the removal of the GST/HST group relief exemption for clearing and settlement services supplied outside a closely related group of corporations in the financial services sector.
• Proposed the removal of ships’ stores excise tax relief for certain vessels, and a compensating temporary fuel tax rebate.
• Proposed a new tobacco tax structure, including a two-tiered export tax regime for exported Canadian tobacco products.

Simplifying and Improving Tax
Administration and Enforcement

• Strengthened outreach and education programs.
• Enhanced easy-to-understand automatic telephone information systems.
• Met with special tax filer groups such as senior citizens and immigrants to help them comply.
• Established a single Business Number for streamlining registration for GST remitters, employers, corporations and importers/exporters.
• Introduced a "Business Window" initiative to provide one-stop service for small businesses.
• Simplified payroll reporting for small businesses.
• Reduced compliance costs for small and medium-sized businesses by co-ordinating GST, income tax and excise tax audits.
• Streamlined procedures to simplify and expedite Customs clearance.
• Implemented a new approach to large business audits including audit protocol.
• Reinforced measures to target the underground economy.
• Implemented earlier identification of abusive tax avoidance and tax shelter schemes.
• Continued to improve sophisticated risk models to identify areas of high risk and a sector approach to compliance for small and medium-sized businesses.
• Introduced forgiveness of penalties on voluntary tax disclosures to encourage taxpayers to comply voluntarily.
• Implemented exchange of information provisions to help deal with tax havens.
• Implemented new rules requiring residents of Canada to file an information return when they own foreign assets in excess of $100,000 in value.
• Required adequate documentation of transactions relating to transfer pricing and introduced new penalty provisions related to Revenue Canada reassessments.
• Increased resources for Revenue Canada for transfer pricing audits.

• Introduced mandatory reporting of federal and construction contracts.

• Allowed corporations to offset interest on corporate tax overpayments and underpayments.
• Provided for civil penalties for misrepresentations of tax matters by third parties.
• Improved tax administration by sharing limited information with provinces.
• Proposed measures to reduce tobacco contraband.

• Authorized the Minister of National Revenue to obtain judicial authorization, in certain circumstances, to take immediate action to protect GST/HST revenues.
• Allowed the Canada Customs and Revenue Agency to provide relevant taxpayer information to the police for investigation purposes.
• Extended tax penalties to persons who interfere with an official performing a collection duty.

• Empowered the Minister of National Revenue to waive or cancel interest, or a penalty calculated in the same manner as interest, that is otherwise payable under the non-GST/HST portions of the Excise Tax Act.
• Refined the rules related to the electronic filing of GST/HST returns by removing the requirement to apply to the Minister of National Revenue for approval, provided established criteria are satisfied.

• Proposed to institute a new procedure to revoke or deny registered charitable status for charities that support terrorist activities.
• Proposed to improve the responsiveness of the GST credit effective July 2002.
• Proposed a new legislative and administrative framework for the taxation of spirits, wine and tobacco.

Notice of Ways and Means Motion

Notice of Ways and Means Motion to Amend the Income Tax Act

That it is expedient to amend the Income Tax Act to provide among other things:

Apprentice Vehicle Mechanics’ Tools

(1) That, for the 2002 and subsequent taxation years,

(a) there may be deducted, in computing the income of an individual from employment in the year as an apprentice mechanic registered in a provincial program leading to designation as a mechanic licensed to repair self-propelled motorized vehicles, an amount not exceeding the lesser of the individual’s deductible tool costs for the year and the amount that would otherwise be determined under section 3 of the Act to be the individual’s income for the year;

(b) where the individual’s deductible tool costs for a taxation year exceed the amount deducted in respect of those costs for the year, the excess be available for deduction in computing the individual’s income from employment for subsequent taxation years; and

(c) for the purposes of this paragraph and paragraph (2), the individual’s deductible tool costs for a taxation year be the amount, if any, by which

(i) the total cost of new tools and ancillary equipment that are acquired by the individual at a time in the year when the individual is under the apprenticeship, and that are certified by the individual’s employer to be required as a condition of, and for use in, the apprenticeship

exceeds

(ii) the greater of $1,000 and five per cent of the individual’s income for the year from the apprenticeship.

(2) That, where the cost of a property is included in computing an individual’s deductible tool costs for a taxation year,

(a) for all other purposes of the Act, the individual’s cost of all such property acquired in the year be reduced pro rata by the individual’s deductible tool costs for the year; and

(b) where the property is disposed of by the individual (or by a person with whom the individual does not deal at arm’s length or that acquired the property from any such person in a transaction to which subsection 85(1) or 97(2) of the Act applied), the amount by which the proceeds of disposition exceed the cost of the property, as adjusted by subparagraph (a), be included in computing the income for the year of disposition of the individual or of the person, as the case may be.

Adult Basic Education

(3) That, for the 1997 and subsequent taxation years, there be deducted in computing an individual’s taxable income for the year an amount that

(a) is received by the individual in the year under a program referred to in subparagraph 56(1)(r)(ii) or (iii) of the Act, a program established under the authority of the Department of Human Resources Development Act or a prescribed program;

(b) is assistance for the payment of tuition fees of the individual that do not qualify for the tuition fee credit;

(c) is included in computing the individual’s income; and

(d) is not otherwise deductible in computing the individual’s taxable income.

Education Tax Credit

(4) That, for the 2002 and subsequent taxation years, financial assistance included in computing an individual’s income and received under a program referred to in subparagraph 56(1)(r)(ii) or (iii) of the Act, a program established under the authority of the Department of Human Resources Development Act or a prescribed program not affect the individual’s eligibility for the education tax credit.

Promoting Sustainable Woodlot Management

(5) That

(a) subsections 70(9) and 73(3) of the Act, which provide rollover treatment for certain inter-generational transfers of farm property, be modified with respect to transfers made after December 10, 2001 of property used principally in a woodlot farming business by requiring, as an alternative to the condition that certain individuals be actively engaged in the business on a regular and continuous basis, that they be engaged in the business to the extent required by a prescribed forest management plan; and

(b) amendments be made to the definitions "interest in a family farm partnership" and "share of the capital stock of a family farm corporation" in subsection 70(10) of the Act to provide comparable treatment under subsections 70(9.2) and 73(4) of the Act.

Donations of Publicly Traded Securities

(6) That

(a) the reduced capital gains inclusion rate provided under paragraph 38(a.1) of the Act in respect of certain donations apply to such donations made after 2001; and

(b) the deduction provided in computing taxable income under paragraph 110(1)(d.01) of the Act in respect of certain donations of securities apply to such donations of securities acquired after 2001.

GSTC Responsiveness

(7) That an eligible individual’s goods and services tax credit payment for a quarter that begins after June 2002 be calculated taking into account the individual’s relevant family circumstances at the end of the preceding quarter.

Deferral of Corporate Tax Instalments for Small Businesses

(8) That the Act be amended to provide

(a) that, where a corporation is an eligible corporation (as described in subparagraph (c)) for a taxation year and the taxation year includes one or more days in January, February or March, 2002 (in this paragraph referred to as the corporation’s "eligible instalment days") on which an instalment on account of the corporation’s tax under any of Parts I, I.3, VI and VI.1 of the Act in respect of the taxation year would otherwise become due, the corporation’s balance-due day for the taxation year be the later of

(i) the day that would otherwise be the corporation’s balance-due day for the taxation year, and

(ii) the day that is six months after the corporation’s last eligible instalment day in the taxation year;

(b) that if an instalment on account of an eligible corporation’s tax under any of Parts I, I.3, VI and VI.1 of the Act, in respect of a particular taxation year of the corporation, would otherwise become due on an eligible instalment day of the corporation, that instalment not become due on that day, but instead become due

(i) if the particular day that is six months after the eligible instalment day is in the particular taxation year, on the particular day, and

(ii) in any other case, on the corporation’s balance-due day (determined in accordance with subparagraph (a)) for the particular taxation year; and

(c) that a corporation be an eligible corporation for a particular taxation year if the corporation is resident in Canada throughout the particular taxation year and the corporation’s taxable capital employed in Canada, within the meaning assigned by Part I.3 of the Act, for its preceding taxation year did not exceed

(i) where the corporation is not associated with any other corporation in the particular taxation year, $15 million, and

(ii) where the corporation is associated with one or more other corporations in the particular taxation year, the amount by which $15 million exceeds the total of the taxable capital employed in Canada of all those other corporations for their last taxation years that ended in the last calendar year that ended before the beginning of the particular taxation year.

Qualified Limited Partnerships

(9) That, in applying the provisions of the Act relating to the foreign property limit after 2001, any person that holds, either alone or as part of a group of persons that do not deal with each other at arm’s length, more than 30 per cent of the limited partnership units in a qualified limited partnership be deemed to hold, instead of those units, a proportion of each property of the partnership that is equal to the proportion of those limited partnership units actually held by that person.

Use of Canadian Investment Managers

(10) That, for the 2002 and subsequent taxation years, section 115.2 of the Act, which ensures that the provision by a Canadian service provider of designated investment services to a qualified non-resident does not, by itself, cause the non-resident to be considered to be carrying on business in Canada, be amended so that the provision of such services to a partnership does not, by itself, cause a non-resident member of the partnership to be considered to be carrying on business in Canada.

Construction Work Camps

(11) That an exception to section 67.1 of the Act be introduced to allow full deductibility of business expenses incurred after 2001 for meals provided to a taxpayer’s employee at a work camp if

(a) the duties of the employee are performed at a site in Canada at which the taxpayer carries on construction activities;

(b) the site is a special work site, described in subparagraph 6(6)(a)(i) of the Act, to the employee;

(c) the employee is lodged at the work camp for the purpose of performing duties at the site; and

(d) the camp is a temporary facility that is constructed or installed for the purpose of providing meals and lodging to employees performing duties at the site.

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