Budget in Brief 1996 - 3
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Archived - Investing in the Future

The budget announces actions, funded by reallocation in government spending, to increase Canada's investment in areas critical to the country's economic future and to future jobs and growth -- youth, technology and international trade.

Youth: Education and skills development for young Canadians will be further encouraged with an additional $165 million over three years funded from reallocation within the tax system.

• Education tax credit: To recognize the non-tuition costs of schooling, the amount on which the credit is based will be increased from $80 to $100 a month.
• Transfer of tuition and education credits: To support parents or spouses who help underwrite the education of students, the limit on transfer of tuition and education credits will also be increased from $680 to $850. This represents an increase from $4,000 to $5,000 in the tuition fee and education amounts which may be transferred.
• Registered Education Savings Plans (RESPs): To assist those who save for their children's education, the annual limit on contributions to RESPs will be increased from $1,500 to $2,000. The lifetime contribution limit per beneficiary will be increased from $31,500 to $42,000.
• Child care expense deduction: For single parents who are full-time students, the child care expense deduction will be allowed against any income. This measure will also apply to two-parent families when both parents are full-time students. Parents who are completing high school will be allowed this deduction for the first time.

Student loans: More flexible repayment terms will also be made available for loans under the Canada Student Loans Act.

New employment opportunities will be created for youth by reallocating $315 million of budget savings over three years.

• Student summer employment: Funds for 1996-97 student summer employment placements will be doubled to $120 million.
• Youth employment: Support will also be increased to help young people who have left school to find employment opportunities. The government seeks a new partnership between the public and private sectors to create entry-level jobs for the young.

Technology and innovation: The budget increases investment in technology and innovation through a number of actions over the next three years, funded by reallocations of $270 million from budget savings.

• Technology Partnerships Canada will be established to encourage partnership and risk sharing with the private sector and to leverage investment in the development and commercialization of high technology products and processes. The fund will grow from about $150 million in 1996-97 to about $250 million by 1998-99.
• Business Development Bank: New equity capital of $50 million will be injected into the Business Development Bank to increase its lending efforts in strategic growth sectors, such as new technology. This will permit up to an additional $350 million in loans to knowledge-based, export and growth businesses.
• The SchoolNet program will be expanded. It will ensure that every school and library in the country is connected to the information highway by 1998. By the same year, 1,000 rural communities will also be connected through the Community Access component of SchoolNet. With the help of 2,000 computer students, 50,000 small businesses will be connected to the Internet. Students will both install those systems and advise their owners on how best to use them.
• Information highway: To help increase the contribution of the information highway to jobs and growth, the Ministers of Industry and Canadian Heritage will be introducing policies and reforms to facilitate greater reliance on the marketplace while respecting the commitment to affordable access and to a Canadian presence on the information highway.

International trade: New steps will be taken to realize Canada's trade potential.

• The Export Development Corporation will receive $50 million in new equity capital for further innovative types of export financing.
• Export financing: A major increase in financing available to exporters will be achieved by reallocating resources from concessional loans to foreign borrowers to finance higher volumes of non-concessional financing under an improved system of risk management.

Business tax review: A comprehensive review of business taxation will be carried out by a technical committee with three key goals in mind: promoting jobs and growth; simplifying the system and enhancing fairness.

Revenues

The budget proposes further actions to ensure that the tax system raises revenues fairly and effectively, and is supportive of jobs and growth. Revenues raised will be reallocated to priority economic and social initiatives such as improved tax assistance for students, charitable donations and care of the infirm.

Table 3
Summary of tax measures

	1996-97	1997-98	1998-99
	(millions of dollars)
Revenue-enhancing measures
Personal income tax
Changes to RRSPs Restrict      tax assistance/ non-deductibility of fees	45	180
Tax world-wide income of      non-res. pensioners	10	10	10
LSVC: Restrict tax assistance	15	60	70
Measures to combat      underground economy	25	60	100
Total	50	175	360
Business income tax Resource sector
Repeal JEC rules	--	--	--
Tighten flow-through shares	15	20	20
Temporary tax on banks	25	40
Overseas employment credit	10	10	10
Total	50	70	30
Total	100	245	390
Reallocation to high-priority areas
Personal income tax      Charitable donations	-5	-20	-20
Learning package	-5	-80	-80
Infirm credit	-5	-35	-40
Child support/ Working      Income Supplement	-10	-105	-180
Total	-25	-240	-320
Business income tax
CCA for new mines, oil sands	-5	-5	-5
Extension of 60-day      flow-through share rule	--	--	--
Broaden investor base      for renewable energy [1]	-5	-10
Expand flow-through shares      to renewable sector	--	--	--
Total	-30	-250	-335
Net impact of revenue actions	70	-5	55
1 The budget proposes to relax the "specified energy property" rules. -- Less then $5 million.

Fairer, more affordable tax assistance for retirement savings

A number of changes are proposed to better target tax assistance for retirement savings to modest and middle income Canadians and to limit the cost to taxpayers.

• Lifetime carry forward: The seven-year limit on carrying forward unused RRSP contribution room will be eliminated to provide greater flexibility in making up for years when full contributions are not made. This action recognizes that many younger Canadians have difficulty finding the money to make full RRSP contributions early in their working lives and through their child-raising years.
• RRSP contribution limit: Tax assistance will be limited to helping build pensions based on earnings up to twice the average wage. To achieve this, annual RRSP and money purchase pension plan contribution limits will be frozen at $13,500 through 2003 before rising to $15,500 by 2005. The pension limit for defined benefit pension plans will also be frozen through to 2004.
• RRSP age limit: The age limit for RRSP contributions will be reduced from 71 to 69. This means individuals must begin drawing on their private pension savings by the end of the year in which they turn 69. This will bring the limit more into line with the age at which Canadians are retiring and will limit unnecessary tax deferral.
• Self-directed RRSP administration fees: Administration fees for self-directed RRSPs will no longer be tax-deductible if paid for outside the plan -- the same rule as for other RRSP expenses.
• Non-resident pension recipients: The pensions of non-resident pension recipients will be taxed on the basis of world-wide income to eliminate a tax benefit that is unavailable to Canadian residents. The government is working with foreign tax authorities to ensure fair taxation of all pension recipients.

Several other measures are proposed to tighten and clarify the tax system and raise revenues for reallocation to priority initiatives.

• Underground economy: Revenue Canada will step up its actions to combat the underground economy by devoting more resources to its audit program for unincorporated businesses and self-employed individuals in order to increase the audit coverage rate for these groups. It is expected additional revenues will be about three times the cost involved.
• Labour Sponsored Venture Capital Corporations (LSVCCs): Special incentives to encourage investment in LSVCCs will be reduced. The tax credit for investment in LSVCCs will be reduced from 20 per cent to a maximum of 15 per cent for shares acquired after March 5, 1996. The maximum share purchase eligible for the federal tax credit will be reduced from $5,000 to $3,500, effective immediately. These measures reflect the fact that LSVCCs now have a large pool of capital to be invested in small businesses as a result of the incentives. The minimum holding period normally applied to federally registered LSVCC shares will be increased from five to eight years.
• Resource taxation: The rules related to the resource allowance will be tightened and clarified to ensure a more consistent and stable tax structure. Changes will be made to the accelerated cost allowance rules for new mines, including oil sands mines. Eligibility will be broadened so that other types of oil sands mines are treated more consistently.
• Renewable and non-renewable energy investments: To encourage renewable energy investments, the tax rules will be changed to create an essentially level playing field. Proposed changes will improve tax rules for the financing of some renewable energy and conservation projects, including the extension of flow-through share provisions.

Large deposit-taking institutions: The temporary 12-percent surcharge on banks and other large deposit-taking institutions will be extended for another year.

Sales tax

The government is continuing its effort to replace the federal sales tax. The objective is a system that is fairer for Canadians, simpler and less costly for businesses to comply with, and more efficient to administer. Toward that goal, the government is working with a number of provinces. If successful in getting provincial agreement, the government will take the necessary steps to implement harmonization.

Conclusion

"This budget is about consolidating the gains we have made. It is about addressing problems before they arise. It is about managing ahead, continuing to put in place new building blocks for security and prosperity ...

Our challenge today is to make Canada a place of great expectations, a country once again where our children believe they have the opportunity to do better than their parents, a place where they can dream large dreams once more.

Let us follow in the footsteps of those who came before, who saw challenge as a rallying cry to move forward, never as an excuse to give up.

And let it be said by those who come after us, that we set the goals, that we met them together, that we propelled Canada forward into a new millennium -- still and always among the front ranks of nations."

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