Tax changes likely in 2015 budget: KPMG

“The government has been focused on balancing the budget for 2015, a year when Canadians will head to the polls,” says Elio Luongo, Canadian managing partner, tax, KPMG in Canada. “We will see if its focus on tax fairness and tax tightening measures has paid off and how the financial difficulties experienced in our energy sector have impacted the government’s ability to balance the books.”

KPMG expects the budget to continue eliminating “tax loopholes” and introduce tax base tightening measures that target specific tax planning that the government considers unacceptable.

It is also possible the government may act on its remaining 2011 election promises to provide a variety of personal tax breaks once the budget was balanced. This could include increasing the annual contribution limit for Tax Free Savings Accounts (TFSA) from $5,000 to $10,000, and introducing an adult fitness tax credit for up to $500 in eligible expenses.

KPMG also takes some of its predictions from recommendations made by the House of Commons Standing Committee on Finance in a 2015 report called “Towards prosperity: federal budgetary priorities for people, businesses and communities.” The Finance Committee’s reports often form the basis for the government’s budget proposals.

For instance, the committee recommended the government explore measures that would prompt higher levels of charitable donations, such as providing an enhanced charitable donation tax credit to individuals who donate an amount in a given year that exceeds their donation in the preceding taxation year.

It was also suggested the government examine methods to help Canadians save for long-term care and uncover ways to financially support retirees, such as modifications to registered retirement income fund withdrawal rates.

In terms of the business community, the committee report stated the federal government should consider assisting small and medium-sized businesses that wish to access the Scientific Research and Experiential Development investment tax credit. One way to accomplish this could be to introduce a “patent box” regime, which would reward innovative companies with a lower corporate tax rate on profits earned through the commercialization of their patents in Canada.

And the government could consider extending the Accelerated Capital Cost allowance or creating a similar tax incentive to encourage new investments in machinery and equipment for the manufacturing and processing sector.

The government has already made recent moves to cut taxes through the Family Tax Cut package, which is a form of notional income splitting that can result in savings of up to $2,000 for certain families with children under the age of 18, starting in 2014. It has also increased the maximum amounts individuals can claim under the Child Care Expense Deduction, increased the Universal Child Care Benefit and eliminated the Child Tax Credit in 2015.