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New government set to act on tax promises

New government set to act on tax promises

New Liberal government delivers its economic update

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Canada's new government has offered a preview of tax measures that it is considering implementing in the near future. The potential tax measures detailed in a mandate letter to the Minister of Finance and in Finance's fall economic update are already known, as they were either proposed before the election or included in the Liberal party's election platform. However, these publications confirm that certain measures could be coming in the 2020 federal budget, or possibly even sooner.

The Prime Minister's recent mandate letters to the Minister of Finance and the Minister of Revenue outlines tax legislation priorities and, in combination with the mandate letters to other Ministers, include all of the tax measures promised in the Liberal Party's election platform. Among other concerns, Finance is asked to look at changes to "close corporate tax loopholes that allow companies to excessively deduct debt", tax the revenue that "multinational tech giants" generate in Canada and cut corporate taxes by 50% for businesses that develop technologies or manufacture products that have zero emissions (for a full list, see TaxNewsFlash-Canada 2019-43, "Post-2019 Election — Possible Tax Changes"). The mandate letter to the Minister of Finance also includes finalizing outstanding changes to the employee stock option rules (see TaxNewsFlash-Canada 2019-29, "Finance Reveals More Details on Stock Option Deduction Cap"). At the fall economic update on December 16, 2019, Finance did not announce further changes but confirmed that it intends to undertake a comprehensive review of government spending and tax expenditures beginning in 2020.

Background

The Liberal Party of Canada formed a minority government following the results of the 2019 federal election on October 21, 2019. While the Liberal Party made many corporate and individual tax promises during the election campaign, some pledges may have to be modified before they are introduced to win the support required to proceed through Parliament and pass into law (see TaxNewsFlash-Canada 2019-43, "Post-2019 Election — Possible Tax Changes").

One election promise has already been proposed. Following the election, Finance announced it would gradually increase the basic personal income tax deduction to $15,000, starting in 2020 (see TaxNewsFlash-Canada 2019-57, "Canada Proposes New "Middle Class Tax Cut" Starting in 2020"). This measure was included in the Liberal party's election platform.

In addition, not all of the tax proposals in the 2019 federal budget have been enacted into law yet. It is likely that Finance will proceed with these proposals, including changes to implement a $200,000 annual cap on certain employee stock options that qualify for the stock option deduction (see TaxNewsFlash-Canada 2019-29, "Finance Reveals More Details on Stock Option Deduction Cap").

Mandate letter

In the mandate letter to the Minister of Finance, the Prime Minister states that Finance's top priorities should include changes to implement the promises made during the election campaign. In addition, Finance is asked in the mandate letter to finalize its amendments to limit the benefit of the employee stock option deduction for "high-income individuals employed at large, long-established mature firms".

The mandate letter to the Minister of National Revenue says that the CRA should prioritize work on client-based improvements, including leveraging data and emerging technologies, improving communications and looking for ways to simplify tax forms. The letter also asks the CRA to seek new ways to counter tax avoidance and evasion, including enhancing existing whistleblower programs and working with international partners on this issue.

For more information, contact your KPMG adviser.

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