‘Legitimate concern’ over changes coming in U.S.

Continued from FP1

The budget also focused on closing some loopholes — including preventing tax avoidance or deferral through the use of offsetting derivative positions in socalled straddle transactions — while kicking substantial changes to Canada’s tax policy down the road.

The cautious approach is likely in anticipation of large-scale corporate and personal tax changes expected in the U.S. under President Donald Trump.

Improved tax compliance stemming from Canada’s fresh $523.9-million commitment to combating tax evasion is expected to bring in $2.5 billion, or a return of five to one, according to Wednesday’s budget document. This would be on top of the expected return of $2.6 billion from the $444 million committed last year.

If you’re a high-net worth individual, your tax haven may not be as haven-y. Ottawa seems determined to ensure everyone pays their share.

“Tax evasion and avoidance act to undermine the hard work of Canadian individuals and businesses that play by the rules,” the budget document says. “The government will continue to crack down on these unfair practices to help ensure our tax system is fair and equitable for all Canadians.”

Prior to the budget’s release on Wednesday, there had been speculation that Justin Trudeau’s Liberal government would raise taxes on capital gains or dividends, taking aim at investors.

“Canadians expect a fair tax system. Our government is committed to taking action on this issue, and we will have more to say on this in the near future,” Finance Minister Bill Morneau said in prepared remarks for his speech in the House of Commons.

Going forward, he pledged to eliminate inefficient tax measures, particularly those that “disproportionately benefit the wealthy,” and stressed the government’s commitment to close loopholes that give unfair tax advantages to some Canadians at the expense of others.

“All Canadians must pay their fair share of taxes. Period,” Morneau said.

Donald Carson, a tax partner with MNP LLP, said the lack of substantial tax changes in this budget is most likely due to Trump’s election.

“It would have been premature to make changes without knowing what our most important trading partner is going to be doing,” he said, adding that there is “legitimate concern” that substantial changes will be made to personal and corporate taxes in the U.S.

“Canada’s tax policy needs to be competitive from an international perspective,” he said.

“We might not know (what’s happening with U.S. tax policy) until later this fall or next year,” said Carson, noting that the Trump administration is likely to be preoccupied with health care reform in the coming months.

Among the tax loopholes to be closed by Wednesday’s budget is one that affects Registered Education Savings Plans and Registered Disability Savings Plans by extending anti-avoidance rules similar to those already applied to RRSPs and tax-free savings accounts. These rules prevent people from operating day-trading or other businesses within these savings vehicles, Carson said.