Highlights of the 2019 Federal Budget

On March 19, 2019 ("Budget Day"), the Department of Finance (Canada) tabled Canada's federal budget for 2019 ("Budget 2019"). The highlights include proposals (or intentions to proceed with proposals) to:

• Extend the foreign affiliate dumping rules so as to also apply to any corporation resident in Canada that is controlled by a non-resident individual or non-resident trust or any group of non-arm's length non-resident individuals, non-resident trusts and/or non-resident corporations.
• Introduce an ordering rule to ensure that the transfer pricing rules apply before other provisions of the Income Tax Act (Canada) (the "Act").
• Prevent non-resident taxpayers from avoiding Canadian dividend withholding tax on compensation payments made under cross-border securities lending arrangements with respect to Canadian shares.
• Limit the current preferential employee stock option deduction in respect of shares of large, long-established, mature companies by applying a $200,000 annual cap on otherwise qualifying options (based on the fair market value of the underlying shares as at the time of grant).
• Prevent the use by mutual fund trusts of a method of allocating capital gains or income to their redeeming unitholders where tax is inappropriately deferred or ordinary income is converted into capital gains.

The Government announced a number of personal income tax measures dealing primarily with extending the change-in-use rules to a change-in-use of only a part of a multi-unit residential property, introducing financial support and incentives for first-time home buyers, and extending liability to a holder of a TFSA that carries on business.

Budget 2019 re-affirms the Government's commitment to invest in audit and risk detection programs, continued participation in the OECD BEPS project, strengthened corporate transparency of beneficial owners, and a number of previously announced measures.

CORPORATE INCOME TAX MEASURES

Employee Stock Options

Budget 2019 announces the Government's intent to limit the use of the current employee stock option tax regime by applying a $200,000 annual cap on employee stock option grants (based on the fair market value of the underlying shares at the time of grant) that may benefit from a stock option deduction (the "Deduction"). Where the Deduction is available, it results in preferential personal tax treatment - effectively, the stock option benefit is taxed at 50% of ordinary income tax rates. However, the cap on the availability of the Deduction will apply only for employees of "large, long-established, mature" firms. There will be no cap on stock option benefits for employees of start-ups and rapidly growing Canadian businesses. Further details of this measure will be released before the summer of 2019. Any changes will apply on a go-forward basis only and will not apply to employee stock options granted prior to the announcement of legislative proposals to implement any new regime.

Budget 2019 provides three examples:

• An employee of a large, long-established, mature company is granted options to acquire 100,000 shares at a price of $50 per share (the fair market value of the share on the date of grant). In this case, only options in respect of 4,000 of the shares ($200,000 annual cap divided by the $50 per share value) from this grant could continue to receive preferential personal income tax treatment. The stock option benefits associated with the other 96,000 options would be included in income and fully taxed at ordinary rates (and, the example suggests, would also be deductible for corporate income tax purposes which would represent a change from the current rules).
• At the same time, an employee of the same company is granted options to acquire 3,000 shares at a price of $50 per share. Since the fair market value of the underlying shares at the time of grant is within the $200,000 annual limit (3,000 x $50 = $150,000), all of the benefits associated with these options will continue to receive preferential personal income tax treatment.
• An employee of a start-up company is granted options to acquire 100,000 shares at a price of $1 per share. Since the employee received these options from a start-up company, all of the stock option benefits associated with the options will continue to receive preferential personal income tax treatment (note: it would have been helpful it the Department of Finance had specified in this example what the fair market value of the underlying shares had been at the time of grant to make it clear that even if the fair market value of such shares was in excess of the $200,000 annual limit, the fact that they were granted by a start-up would mean that the preferential tax benefits would remain uncapped).

Conversion of Income to Capital Gains by Mutual Funds

The Act was amended in 2013 to add rules to treat gains arising from a "derivative forward agreement" as ordinary income. A "derivative forward agreement" is defined to include any agreement to purchase a capital property where the term of the agreement (or series of agreements) exceeds 180 days and the difference between the fair market value of the property delivered on settlement and the amount paid for the property is derivative in nature (i.e., the difference is attributable wholly or partly to an underlying interest other than interests specifically excluded from the definition).

One of the exclusions from the definition any purchase agreement where the difference between the fair market value of the property delivered on settlement and the amount paid for the property is attributable to "revenue, income or cashflow in respect of the property over the term of the agreement, changes in the fair market value of the property over the term of the agreement, or any similar criteria in respect of the property". This exception is meant to deal with the economic performance of the actual property and was intended to exclude ordinary commercial transactions from the scope of these rules. The Government believes that certain taxpayers may have misused this exception.

The Government uses the example of a mutual fund trust (Investor Fund) entering into a forward purchase agreement with a counterparty (typically a financial institution) to acquire units of a second mutual fund trust (Reference Fund) at a price and cost equal to the value of the units of the Reference Fund on the date the agreement is entered into. Following settlement, Investor Fund redeems or sells the units of Reference Fund and realizes a gain, which it treats as a capital gain by virtue of making the Canadian securities election under subsection 39(4) of the Act. Investor Fund relies on the exception from the "derivative forward agreement" definition on the basis that the return is based on the performance of the units of Reference Fund even though Investor Fund is arguably provided with an economic return that is essentially based on the performance of the portfolio of investments held by Reference Fund. The Reference Fund portfolio investments would typically give rise to income gains if held directly by Investor Fund.

The Government believes that the foregoing transactions could be challenged under existing rules, but such challenges would be time-consuming and costly. Consequently, Budget 2019 proposes an amendment that introduces additional qualifications for the commercial transactions exception described above. The amendment will provide that the exception is not available where: (i) the property is a "Canadian security" (as defined in the Act) or an interest in a partnership the fair market value of which is derived, in whole or in part, from a Canadian security, (ii) the purchase agreement is an agreement to acquire property from a "tax-indifferent investor" or a "financial institution" (each as defined in the Act), and (3) it can reasonably be considered that one of the main purposes of the series of transactions or events, or any transaction or event in the series, of which an agreement to purchase a security in the future (or an equivalent agreement) is part, is for a taxpayer to convert into a capital gain an amount attributable to amounts paid or payable on the Canadian security by its issuer during the term of the agreement as interest, dividends, or income of a trust other than income paid out of the taxable capital gains of the trust.

This measure will apply to transactions entered into on or after Budget Date as well as beginning in 2020 to transactions that were entered into before Budget Date including those that extended or renewed the terms of the agreement on or after Budget Date. This grandfathering will incorporate the same growth limits used under the transitional relief provided under the derivative forward agreement rules introduced in 2013 to ensure that no new money flows into grandfathered transactions on or after Budget Day.

Scientific Research & Experimental Development Program (SRED)

Currently, a Canadian-controlled private corporation (CCPC) may be entitled to an enhanced refundable tax credit of 35% on up to $3 million of qualifying annual SRED expenditures. A CCPC's entitlement to the enhanced SRED credit is gradually phased out where: (i) taxable income of the CCPC together with members of an associated group of corporations is between $500,000 and $800,000 for the previous tax year, or (ii) the taxable capital employed in Canada by the CCPC together with members of an associated group is between $10 million and $50 million for the previous tax year.

Budget 2019 proposes to eliminate the use of taxable income as a factor in determining the annual expenditure limit for the purpose of determining a CCPC's access to the enhanced tax credit on qualifying SRED expenditures. As a consequence, a CCPC's access to the enhanced SRED credit will be limited solely by the taxable capital employed by it and associated corporations in Canada for the previous tax year.

Support for Canadian Journalism

Budget 2019 introduces the concept of a "Qualified Canadian Journalism Organization" ("QCJO") and affords them and their audiences the following benefits:

• The ability for certain QCJOs to become "qualified donees" for the purposes of the Act's charitable giving regime;
• The availability of a refundable labour tax credit for qualifying QCJOs for wages or salary paid to "eligible newsroom employees;" and
• The availability of a non-refundable personal tax credit for "qualifying subscriptions expenses" in respect of "digital news subscriptions" to qualifying QCJOs.

Business Investment in Zero-Emission Vehicles - Budget 2019 introduces two new classes of properties for capital cost allowance on qualifying "zero-emission" vehicles: (i) Class 54 for zero-emission vehicles that would otherwise be included in Class 10 or 10.1, and (ii) Class 55 for zero-emission vehicles that would otherwise be included in Class 16 (which includes taxis, short-term rental and leasing vehicles, and heavy trucks and tractors used for hauling freight). Class 55 zero-emission vehicles will enjoy an immediate write-off in respect of the full cost of such vehicles while Class 54 zero-emission vehicles will be subject to a deduction limit of $55,000.

Small Business Deduction for Farming and Fishing Income - Budget 2019 proposes to expand the farming and fishing income that is eligible for the small business deduction to income arising from the sale of farming or fishing products to any arm's length buyer.

Canada-Belgium Co-Productions - Canadian Film or Video Production Tax Credit - Budget 2019 proposes to add certain joint ventures in audio-visual production between Canadian and Belgium to the list of productions that qualify for the Canadian film or video production tax credit.

INTERNATIONAL INCOME TAX MEASURES

Transfer Pricing Measures

Budget 2019 proposes two measures concerning the relationship between the transfer pricing rules and other provisions of the Act:

• Ordering Rule in respect of taxation years that begin on or after Budget Day - Clarifying that the transfer pricing rules apply in priority to the application of the other provisions of the Act, including those relating to income computation in Part I (although the current specific exceptions to the application of the transfer pricing rules dealing with debt owing from, or guarantees extended in respect of amounts owing by, a controlled foreign affiliate of a Canadian resident corporation will continue to apply).
• Extend the Applicable Reassessment Period for taxation years for which the Normal Reassessment Period ends on or after Budget Day - Extend the use of the expanded definition of "transaction" used in the transfer pricing rules for purposes of the extended reassessment period relating to transactions involving a taxpayer and a non-resident with whom the taxpayer does not deal at arm's length. This will provide the government with three additional years to reassess such transactions.

Foreign Affiliate Dumping

Budget 2019 proposes to extend the application of the foreign affiliate dumping rules contained at section 212.3 of the Act to corporations resident in Canada ("CRIC") that are controlled by:

• a non-resident individual,
• a non-resident trust, or
• a group of persons that do not deal with each other at arm's length comprising any combination of non-resident corporations, non-resident individuals and non-resident trusts.

The foregoing is generally accomplished by replacing the existing reference in paragraph 212.3(1)(b) of the Act to a "non-resident corporation" with a reference to "one non-resident person" or, if no single non-resident person would control the CRIC, with "a group of non-resident persons not dealing at arm's length" (each of which is referred to and defined internally as "parent" and "group of parents", respectively, for purposes of the section). Consequential amendments are also proposed throughout section 212.3 of the Act, primarily to reflect the new concept of "group of parents" and the fact that there may be more than one "parent".

Budget 2019 includes an extended meaning of "related" for the purpose of determining whether a non-resident trust does not deal at arm's length with another non-resident person. Proposed subsection 212.3(26) of the Act provides that for the purposes of section 212.3 (and certain other related provisions), in determining whether two persons are related to each other or whether any person is controlled by any other person or group of persons, it is assumed that:

• Each trust is a corporation having a capital stock of a single class of voting shares divided into 100 issued shares;
• Each beneficiary under a trust owns the proportion of the issued shares of that class as is equal to the amount that the fair market value at that time of the beneficiary's interest in the trust is of the total fair market value at that time of all beneficiaries' interests under the trust; and
• The fair market value at any time of a beneficiary's interest under a discretionary trust is equal to the total fair market value at that time of the interests of all beneficiaries under the trust (e.g. each beneficiary under a discretionary trust holds 100% of the issued voting shares in the trust).

This measure will apply to transactions and events that occur on or after Budget Day.

Cross-Border Securities Lending Arrangements

Budget 2019 proposes four material changes to the securities lending arrangement rules contained in the Act:

1. Ensure that a dividend compensation payment made under a securities lending arrangement by a Canadian resident to a non-resident in respect of a Canadian share is always treated as a dividend and, accordingly, always subject to Canadian dividend withholding tax.

• Proposed subparagraph 260(8)(a)(ii) of the Act provides that an amount paid under an arrangement as a SLA compensation payment in respect of a security that is not a qualified trust unit is deemed, to the extent of the amount of the dividend paid in respect of the security, to be a payment made by the borrower to the lender of a dividend payable under the security.

2. Extend the characterization rule in subsection 260(8) of the Act to any "specified securities lending arrangement" (a concept introduced in Budget 2018 designed to prevent taxpayers from realizing artificial losses through the use of equity-based financial arrangements, including securities loans that are substantially similar to securities lending arrangements).

• Proposed subsection 260(8) of the Act applies also to any amount paid or credited under a "specified securities lending arrangement" (defined at subsection 260(1) of the Act).

3. Introduce other complementary amendments to ensure the rules are not used to obtain other unintended withholding tax benefits. For example, Budget 2019 proposes to introduce a rule to ensure that the same withholding tax rate under a tax treaty applies to a dividend compensation payment made to a non-resident lender as to the dividend that would have been paid to that non-resident lender had it continued to hold the lent Canadian share.

• Proposed subsection 260(8.3) of the Act provides that in applying subparagraph 260(8)(a)(ii) of the Act (which apply for purposes of Part XIII), in determining the rate of tax that Canada may impose on a dividend because of the dividend article of a tax treaty:

a) any SLA compensation payment deemed to be a payment made by the borrower to the lender of a dividend is deemed to be paid by the issuer of the Canadian share and not by the borrower,

b) the lender is deemed to be the beneficial owner of the Canadian share, and

c) the shares of the capital stock of the issuer owned by the lender are deemed to give it less than 10% of the votes that could be cast at an annual shareholders' meeting and to have less than 10% of the fair market value of all of the issued and outstanding shares of the capital stock of the issuer if (i) the arrangement is not a "fully collateralized arrangement" (an arrangement in which the borrower has provided the lender with collateral (whether in money or in qualified securities) having a fair market value of not less than 95% of the fair market value of the transferred security, and is entitled to enjoy (directly or indirectly) the benefits of all or substantially all the income derived from, and opportunity for gain in respect of, the money or securities provided) and (ii) the borrower and lender are not dealing at arm's length.

4. Introduce a relieving provision to broaden the existing exemption from Canadian dividend withholding tax so that it includes any dividend compensation payment made by a Canadian resident to a non-resident under a securities lending arrangement if the arrangement is "fully collateralized" and the lent security is a foreign share.

• Budget 2019 proposes to replace subsection 212(2.1) of the Act, which exempts certain deemed dividends from withholding tax in respect of securities lending arrangements involving shares of non-resident corporations if the arrangement was entered into by the borrower in the course of carrying on a business outside of Canada, with an exemption from withholding tax for such deemed dividends under such arrangements in respect of such shares if the arrangement is a fully collateralized arrangement.

The relieving provision will apply to dividend compensation payments that are made on or after Budget Day. The other proposals will apply to compensation payments that are made on or after Budget Day unless the securities loan was in place before Budget Day, in which case the proposals will apply to compensation payments made after September 2019.

OECD BEPS Project

The first exchanges of country-by-country reports, an initiative spearheaded by the OECD through the Base Erosion and Profit Shifting (BEPS) project to provide tax authorities with new information to better assess transfer pricing risks, took place in 2018. Budget 2019 notes that Canada is participating in an OECD review of the standard for these reports to ensure that they provide better information that allows for proper assessment of transfer pricing and other BEPS risks. This review is scheduled to be completed in 2020.

Regarding the recently executed Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (known as the "MLI"), Budget 2019 notes that the Government is taking the necessary steps to enact the MLI into Canadian law and to ratify the MLI as needed to bring it into force.

PERSONAL INCOME TAX MEASURES

Mutual Funds - Allocation to Redeemers Methodology

Budget 2019 introduces measures to curtail perceived abuse of the "allocation to redeemers" methodology used by many mutual fund trusts. When the units of a mutual fund trust are redeemed, the mutual fund trust often needs to dispose of fund assets in order to fund the redemption. This often attracts double taxation, namely the tax arising to the trust on disposition of the trust's assets and the tax arising to the former owner on the redemption of units.

In order to effectively relieve against such double tax, a practice (the "methodology") has developed under which the trust allocates the capital gains triggered on the disposition of assets to the redeeming unitholder. This methodology allows the mutual fund trust to deduct in computing its income the amount of any capital gains allocated to the redeeming unitholder, whose proceeds on the redemption will be reduced by the allocated amount. However, certain mutual fund trusts have been using the methodology to allocate capital gains to a redeeming unitholder in excess of the capital gains that would otherwise have been realized by such unitholder on the redemption. Accordingly, the remaining unitholders effectively realize a deferral - the excess portion is reflected as an unrealized gain in their units, which will not be taxed until their units are redeemed or sold. Where the redeeming unitholders held their units on income account but other unitholders hold their units on capital account, the same methodology can be adapted to convert what would otherwise be ordinary income of the mutual fund into capital gains for the remaining unitholders.

In response to this perceived misuse, Budget 2019 proposes to deny a deduction to mutual funds trusts for capital gains allocated to redeeming unitholders in excess of the capital gain that would otherwise have been realized on the redemption where the allocation reduces the redeeming unitholder's proceeds of disposition. Since the allocation of capital gains to a redeeming unitholder by a mutual fund trust will now require knowledge of the redeeming unitholder's cost of the units being redeemed, it will be administratively difficult, and in some cases practically impossible, for a mutual fund trust to allocate capital gains using this methodology. Such trusts will be forced to rely on the capital gains refund mechanism, which the Government acknowledges in the Budget document does not always fully relieve double taxation.

Further, in response to the character conversion planning, Budget 2019 proposes to deny a deduction to mutual fund trusts for income allocated to a redeeming unitholder where the allocation reduces the redemption proceeds of the redeeming unitholder.

These proposed measures will apply to tax years of mutual fund trusts that begin on or after Budget Day and so will generally not apply until December 16, 2019 or January 1, 2020, unless the mutual fund trust has a short taxation year.

Change in Use Rules for Multi-Unit Residential Properties - Budget 2019 contains measures to provide owners of multi-unit residential properties with similar tax treatment on a "change in use" to that afforded to owners of single-unit residential properties by extending the elections in subsections 45(2) and 45(3) of the Act to apply to a "change in use" of only part of a property.

Carrying on Business in a TFSA - Budget 2019 proposes to extend the liability for income tax on business income earned through a TFSA to the holder of the TFSA and to limit the liability of a trustee of the TFSA for such tax to the amount of property held in the TFSA plus the total of all distributions made from the TFSA after the notice of assessment for such tax was sent.

Medical Expense Tax Credit - In recognition of the fact that access to cannabis in Canada is now governed by the Cannabis Act and the Cannabis Regulations, Budget 2019 proposes to amend the Act to allow certain expenses incurred for medical cannabis obtained under the new regulatory regime for cannabis to qualify for the medical expense tax credit.

Intergenerational Business Transfers - Budget 2019 notes that the Government will continue its outreach to farmers, fishers and other business owners to develop new proposals to better accommodate intergenerational transfers of businesses while protecting the integrity and fairness of the tax system.

Canada Training Credit - Budget 2019 introduces a new refundable tax credit for qualifying Canadian resident individuals equal to the lesser of: (i) a notional account that can increase by up to $250 per year, (ii) 50% of eligible tuition and other fees, and (iii) a lifetime limit of $5,000.

First-Time Home Buyer Incentive - Budget 2019 proposes to allow eligible first-time home buyers to apply to the Canada Mortgage and Housing Corporation (CMHC) to finance 10% of the purchase price of new homes or 5% of the purchase price of existing homes through a shared equity mortgage. No monthly interest would be required to be paid on the shared equity mortgage. To qualify, the combined household income of the purchasers must be under $120,000. More details of how the shared equity mortgage would be repaid will be forthcoming.

Expanded Annuities under Registered Plans - Budget 2019 proposes to give Canadians some additional flexibility in dealing with their retirement savings. The budget introduces two new eligible annuities for certain registered plans. New "advanced life deferred annuities" (ALDAs) will be permitted under Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Deferred Profit Sharing Plans (DPSPs), Pooled Registered Pension Plans (PRPPs) and defined contribution Registered Pension Plans (RPPs) and new "variable payment life annuities" (VPLAs) will be permitted under PRPPs and defined contribution RPPs. There will be limits on the amounts that taxpayers can spend in relation to a particular Alda as well as a comprehensive lifetime ALDA dollar limit of $150,000 for all qualifying plans (indexed to inflation). Only plans which meet certain requirements relating to the timing and quantum of annuity payments will be qualified ALDAs and VPLAs. The tax consequences on the death of an annuitant of an ALDA will vary depending on the recipient of the payment and the nature of the payment, with surviving spouses and financial dependent children and grandchildren being eligible for a potential rollover upon transfer of a lump-sum payment to qualifying vehicle. The tax consequences on the death of an annuitant of a VPLA will generally mirror those arising in connection with existing permitted annuities purchased through PRPPs and defined contribution RPPs.

RDSPs on Cessation of Eligibility for the Disability Tax Credit - Budget 2019 proposes to modify the consequences arising when the beneficiary of a Registered Disability Savings Plan (RDSP) ceases to be eligible for the Disability Tax Credit (DTC). Under current rules, when DTC-eligibility is lost, the beneficiary is generally required to close the RDSP and repay the grants and bonds received. This can be particularly onerous for individuals who have intermittent episodes of disability.  Budget 2019 seeks to address this concern by permitting the RDSP to remain open without requiring medical certification that the beneficiary may become eligible in the future. In addition, the holdback amount otherwise required will be reduced. The Budget proposes to expand the availability of the rollover of the proceeds of a deceased's RRSP or RRIF to the RDSP of a financially dependent infirm child or grandchild in circumstances where the child or grandchild has lost eligibility for the DTC within a certain period of time.

Donations of Cultural Property - Budget 2019 proposes to amend provisions of the Act and of the Cultural Property Export and Import Act to allow gifts of property of foreign origin to be included in "total cultural gifts" where that property is donated to a qualifying institution.

Contributions of Specified Multi-Employer Plan for Older Members - Budget 2019 proposes to disallow employers to make contributions to a "specified multi-employer plan" (SMEP) in respect of an employee in situations where the employee cannot benefit from the contribution due to the employee's age by prohibiting employers from contributing to a SMEP in respect of an employee in a year following the year in which the employee turned 71.

Pensionable Service under IPP - Budget 2019 contains measures that purport to target circumvention of the limits on a former employee's rollover of amounts earned under a defined benefit RPP into another type of registered plan (such transfers generally being subject to a 50% rollover) by setting up a new private corporation with an "individual pension plan" (IPP) and transferring the amounts from the defined benefit contribution plan into the IPP established through the wholly-owned corporation (such transfers being eligible for a 100% rollover). Budget 2019 proposes to eliminate the full rollover of amounts into an IPP, save for situations where the two IPPs are run by the same employer or a predecessor employer.

Electronic Delivery of Requirements for Information - Budget 2019 proposes to allow the Canada Revenue Agency to deliver requirements for information to banks and credit unions electronically, provided that the bank or credit union has consented to such method of service.

PREVIOUSLY ANNOUNCED MEASURES

Budget 2019 confirms the Government's intention to proceed with certain previously announced tax and related measures, including (among others):

• Measures announced on November 21, 2018 providing for the Accelerated Investment Incentive, accelerated 100% depreciation in respect of machinery and equipment used in the manufacturing and processing of goods as well as specified clean energy equipment, the extension of the 15% mineral exploration tax credit for five years, and ensure that business income of a communal organization retains its character when allocated to members;
• Regulatory proposals released September 17, 2018 relating to the taxation of cannabis; and
• Measures announced in Budget 2018 to implement enhanced reporting requirements for certain trusts to provide additional information on an annual basis.

OTHER MEASURES

Funding Audit and Detection Initiatives

The Government will invest an additional $150.8 million over five years to allow the Canada Revenue Agency to fund new initiatives and extend existing programs, including:

• Hiring additional auditors, conducting outreach and building technical expertise to target non-compliance associated with cryptocurrency transactions and the digital economy.
• Creating a new data quality examination team.
• Extending programs aimed at combatting offshore non-compliance.

Transparency and Beneficial Ownership

Budget 2019 notes that the Canada Business Corporations Act was recently amended to require federally incorporated corporations to maintain beneficial ownership information (e.g. the identity of individuals who own, control or profit from a corporation or trust). In Budget 2019, the Government proposes further amendments to the Canada Business Corporations Act to make the beneficial ownership information maintained by federally incorporated corporations more readily available to tax authorities and law enforcement. The Government will continue to collaborate with the provinces and territories on corporate ownership transparency matters.

GST/HST MEASURES

Human Ova and In Vitro Embryos

Effective March 20, 2019, the supply of human ova, as that term is defined in section 3 of the Assisted Human Reproduction Act, will be zero-rated (i.e., not subject to GST/HST). Similarly, the importation of human ova will not be subject to any GST/HST. In addition, effective March 20, 2019, the importation of human in vitro embryos, as that term is defined in section 3 of the Assisted Human Reproduction Act, will not be subject to any GST/HST.

Multidisciplinary Health Care Services

Effective March 20, 2019, a service provided by a multi-disciplinary team of health care professionals (such as physicians, physiotherapists and occupational therapists) will be exempt from GST/HST if all or substantially all of the amounts payable for the service are for medical services which would otherwise have been GST/HST-exempt if rendered separately.

Foot Care Devices Supplied on the Order of a Podiatrist or Chiropodist

Effective March 20, 2019, foot care devices supplied on the written order of a licensed podiatrist or licensed chiropodist will be zero-rated (i.e., not subject to GST/HST). Previously, such supplies were only zero-rated when made on the written order of physicians, nurses, physiotherapists and occupational therapists.

EXCISE DUTY MEASURES

Cannabis Taxation

Budget 2019 confirms that effective May 1, 2019 cannabis edibles, cannabis extracts (including cannabis oils) and cannabis topicals will be subject to excise duties under the Excise Act, 2001 at a flat rate applied to the total THC content in each product (measured in milligrams). The current excise duty framework in place for fresh and dried cannabis and for cannabis seeds and seedlings will remain unchanged (i.e., the higher of a flat rate and ad valorem amount).

For more information, please contact a member of the Aird & Berlis Tax and Estates Group:

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