Canada: Canada´s Federal Budget 2007

This annual publication was produced jointly by the FMC Public Policy and Taxation practice groups.

Canada’s Minister of Finance Jim Flaherty delivered the Conservative Government’s second federal budget on March 19, 2007. The Budget emphasizes three key goals:

• Initiatives to restore "Fiscal Balance" between the Federal and Provincial Governments
• Establishment of a Working Families Tax Plan to reduce the taxes, in particular for lower- and middle-income families
• Investments directed at the environment and the health care system

The main themes of Budget 2007 include: Environment and Health, Tax Relief, Fiscal Balance, Security, and Capital Markets. Key Conservative promises include the Tax Back Guarantee that will dedicate approximately $1 billion per year in debt interest savings to ongoing personal income tax reductions.

Below is an overview of the main provisions of Budget 2007. For more information on specific tax measures please click here. For a complete copy of the budget documents please click here.

Fiscal Balance

The plan to address "Fiscal Balance" includes $39 billion over seven years comprised of: changes to the equalization payment formula, increases to provincial health and social transfer payments and various federal-provincial funding arrangements in areas such as infrastructure, climate change, and labour market training (specific elements described below).

Working Families Tax Plan

Personal Income Tax rules will be changed to provide a new $2,000 child tax credit and may provide personal income tax relief of up to $310 per child. Lifetime capital gains exemption for small business owners will be increased from $500,000 to $750,000. With regards to seniors, pension income splitting will be permitted and the age limit for converting RRSPs will be increased to 71. For more information on specific tax measures please click here.

Environment and Healthcare Investments

Budget 2007 includes the creation of a previously announced $1.5 billion ecoTrust that will be allocated to the provinces for Clean Air and Climate Change projects. The Accelerated capital cost allowance for oil sands development will be phased out by 2015 and the tax system will be changed to encourage investments in clean and renewable energy. Incentives for fuel efficient vehicles, programs to remove polluting vehicles from use, and investments in renewable fuels production are also included in the budget. $417 million will be allocated to a National Water Strategy that will fund projects to clean up contaminated sites, prevent pollution, increase research and create conservation programs. The Canada Health Transfer will increase by $1.2 billion and will include funding to support Patient Wait Times Guarantee.

Corporate and Business Components

A Major Projects Management Office will be created to streamline the review of large natural resource projects. Furthermore, the government seeks to reduce the regulatory review period from four years to two years for such projects. Manufacturing and processing businesses will be permitted to write off capital investments in machinery and equipments until 2009 using a special two-year 50-percent straight-line rule. The capital cost allowance rate will be raised from 4 to 10 percent for buildings used in manufacturing and processing and from 45 to 55 percent for computers. The 15 percent mineral exploration tax credit will be extended for an additional year, to March 31, 2008. Budget 2007 also allocates $9 million over two years to implement a new initiative to streamline the regulatory obligations on businesses.

Budget 2007 will provide upwards of $16 billion over seven years to fund infrastructure projects, including an extension of the Gas Tax Fund for municipalities. The new Building Canada Fund will receive an allocation of $6 billion in funding in order to contribute to investments in gateways and border crossings and the national fund for public-private partnerships. The total federal investment in the Asia-Pacific Gateway and Corridor Initiative will be increased to $1 billion. A new border crossing at Windsor Detroit will be facilitated by covering 50 percent of the eligible capital cost of the building of the access road from the new crossing to Highway 401, and $10 million over three years will be allocated to Transport Canada to support the project.

Budget 2007 proposes a new Foreign Convention and Tour Incentive Program that will replace the Visitor Rebate Program. This program will provide GST relief in respect of certain property and services used in the course of conventions held in Canada and the accommodation portion of tour packages for non-residents. The Temporary Foreign Workers Program will receive $50.5 million over two years to improve that program.

Additional Commitments

• Acceleration of the implementation of the $5.3-billion, five-year Canada First defence plan. Through this plan, the Canadian Forces will receive $3.1 billion over the next three years.

• Implementation of a $64-million National Anti-Drug Strategy.

• $10 million over two years to create and expand protected areas in the Northwest Territories.

• $324 million over ten years to the Canadian Coast Guard for six new vessels.

• A new registered Disability Savings Plan directed at parents of children with severe disabilities.

• $30 million a year to support local arts and heritage festivals.

• $6 million in additional funds for the RCMP to protect children from sexual exploitation and trafficking.

• $300 million toward an immunization program for provinces to protect women and girls against cancer of the cervix.

• The creation of an Enabling Accessibility Fund with $45 million over three years to contribute to the cost of improving physical accessibility for persons with disabilities.

• One-time funding of $2 million to the No Child Without program that provides free MedicAlert bracelets to more young students.

• Establishing the Canadian Mental Health Commission with $10 million over the next two years and $15 million per year starting in 2009–10. This commission will lead the development of a national mental health strategy.

• $35 million over two years for new graduate student scholarships.

• $10 million per year to establish five new Operational Stress Injury Clinics to assist Canadian Forces members and veterans dealing with stress injuries.

• An Investment of $19 million in 2007–08 and $20 million thereafter to establish the Veterans’ Ombudsman and ensure that services for veterans meet the standards set out in a new Veterans’ Bill of Rights.

• $102 million for the Correctional Service of Canada over two years to begin updating its infrastructure, equipment and programming, pending the results of a panel review.

• $5 million over two years for the establishment of a new entity, Canada’s National Trust, that will protect lands, buildings and national treasures.

• Expansion of the New Horizons for Seniors program by $10 million per year to combat elder abuse and fraud, and to expand capital assistance for community buildings, equipment and furnishings.

• $10 million per year to Status of Women Canada towards action in key areas such as violence against women and girls.

Several of the Firm's tax lawyers are on the Editorial Board of the CCH Canadian Tax Reporter and even more are involved in writing the CCH income tax commentary in the Reporter. FMC's tax lawyers worked with CCH in the Budget lockup and following to produce the CCH Budget commentary on the Budget's income tax measures.

To view Resolutions and CCH Editorial Commentary click here.

FEDERAL BUDGET DOCUMENTS

For the complete budget documents please click here.

If you have any questions or would like any further information relating to the budget or its likely impact on you, please contact a member from our Public Policy or Tax Groups.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.