This summary is intended to highlight the aspects of the budget that will affect some or all of our business owner clients. It is not meant to be a comprehensive outline and analysis of the budget.

Corporate income tax rates

There were no changes porposed to any corporate income tax rates.

Hiring credit for small business

The temporary hiring credit for small business will be extended for another year. The credit will be available to employers whose EI premiums were $15,000 or less in 2012.

Scientific research and experimental development tax credit (SR&ED)

More detailed information will be required when taxpayers use third parties to prepare a claim. Business numbers for each third party along with details about billing arrangements including the existence of contingency fees and the amount of fees payable, will be required. The claimant will have to certify if there was no third-party involvement in preparing the claim. There will be a new $1,000 penalty for all claims where the required information is missing.

Leveraged insured annuities

Leveraged insured annuities use a combination of borrowed funds, lifetime annuities and life insurance policies to create a current interest expense deduction, reduced capital gains tax payable on death, receipt of tax –free growth within the policy and an increase to the capital dividend account of the corporation. We have never been comfortable with such a strategy and now this budget has taken steps to eliminate the tax benefits that made the strategy so marketable.

10/8 arrangements

10/8 arrangements use life insurance policies and borrowed funds to create an ongoing interest expense deduction, a tax deduction for a portion of the life insurance premiums paid and an increase to the capital dividend account of the corporation. This is another tax driven insurance strategy that has always made us uncomfortable, and now this budget has taken steps to eliminate the tax benefits that made the strategy so marketable.

To facilitate the windup of existing arrangements before 2014, the budget proposes to alleviate the tax consequences of withdrawing from a policy under this arrangement to repay the borrowing, if the withdrawal is made on or after March 21, 2013 and before January 1, 2014.

Various other tax measures

  • Accelerated capital cost allowance provisions for clean energy generation and mining companies.
  • Elimination of corporate loss trading with a new provision that restricts the deductibility of losses in cases where there has been an acquisition of control of a corporation.
  • Phasing out of the additional deduction available to credit unions over a five year period.
  • Extention of the accelerated capital cost allowance for manufacturing and processing machinery and equipment acquired after March 18, 2007 and before 2014.

Please let us know if you have any questions about how the budget affects you.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.