2018 Federal Budget: Equality and Growth: A Strong Middle Class
Gender equality, passive income reform for private corporations, and skills investment
What the 2018 Budget Means for You
Finance Minister Bill Morneau presented the 2018 federal budget to the House of Commons on February 27, 2018. The budget contained 8 significant measures affecting Canadians' taxes, benefits, and financial planning, with a projected fiscal deficit of $19 billion against a GDP growth forecast of 2.2%.
The 2018 budget addressed concerns from the 2017 private corporation tax proposals by introducing modified passive income rules that were more targeted than the original proposals, while delivering indexed Canada Child Benefits and gender equality measures.
Corporate tax
Passive Income Rules for Canadian Controlled Private Corporations
Budget 2018 introduces rules limiting access to the small business deduction based on passive investment income earned inside a CCPC. Corporations with associated passive investment income above $50,000 per year see their $500,000 small business deduction limit reduced on a sliding scale, with the limit fully eliminated at $150,000 in passive income. Existing investments and returns are grandfathered; only income from new passive investment portfolios is affected.
Benefits & Credits
Canada Child Benefit Indexation
The Canada Child Benefit is indexed to inflation starting in the 2018-19 benefit year, two years earlier than originally planned. Maximum CCB payments rise in line with the Consumer Price Index each July. For a family with two children under six, the maximum annual benefit increases by approximately $100-200 per year depending on inflation.
EI Regular Benefits Improvements
Eligibility rules for EI regular benefits are improved in regions with high unemployment, and the qualifying period is reduced in some circumstances. A new automatic pilot project extends EI coverage for workers in seasonal industries. Changes reduce the experience required for first-time claimants in high-unemployment regions from 910 hours to 420 hours.
Parental Benefits EI Flexibility
Budget 2018 introduces flexibility in the EI parental benefits system, allowing parents to choose between a standard option (35 weeks at 55% of insurable earnings) or an extended option (61 weeks at 33% of insurable earnings). This allows parents to spread EI parental benefits over up to 18 months following the birth or adoption of a child.
Enhanced Work-Sharing Program
The Work-Sharing program, which allows employers to reduce employee hours instead of laying off workers with partial EI compensation for workers, sees enhanced eligibility and extended program duration. The maximum Work-Sharing agreement duration increases from 38 to 76 weeks, and eligibility requirements are relaxed to allow more businesses to access the program during downturns.
Income tax
Mineral Exploration Tax Credit Extension
The 15% Mineral Exploration Tax Credit for flow-through share investors is extended for one year to flow-through share agreements entered into before March 31, 2019. The credit, first introduced in 2000, supports junior exploration companies raising equity capital for early-stage mineral exploration. Investors who purchase flow-through shares receive both the 100% deduction for exploration expenses and the 15% credit.
Business
Gender-Based Budgeting and Female Entrepreneurship
Budget 2018 introduces Canada's first formal gender-based analysis of federal budget measures. A new Women Entrepreneurship Strategy commits $1.6 billion to help female entrepreneurs grow their businesses, including through the Business Development Bank and Export Development Canada. No specific tax credit is introduced, but access to government financing and programming is expanded.
Eligible Capital Property Transitional Rules
Transitional rules finalize the 2016 conversion of the eligible capital property regime to Class 14.1 depreciable property. Businesses with existing cumulative eligible capital account balances have until January 1, 2024 to elect into the new regime or continue under the transitional rules. The conversion affects goodwill, customer lists, franchises, and other intangible depreciable assets.
Winners and Losers
Who Benefits Most
- Families with children (indexed CCB)
- Seasonal workers (improved EI)
- Female entrepreneurs (new financing programs)
- CCPCs with modest passive income (below $50k threshold)
Who Pays More
- CCPCs with passive income above $50,000
- Private corporations using tax deferral strategies
- Businesses benefitting from SBD rate multiplied by associate structures
What CPAs Are Saying
We asked Canadian CPAs to share their perspectives on the 2018 budget measures and how they're advising clients.
"The CCPC passive income rules required significant restructuring for clients with investment portfolios inside their corporations. The $50,000 threshold before the SBD starts reducing is reasonable, but the impact hits business owners who invested surplus cash conservatively rather than paying it out."
"Canada Child Benefit indexation was a straightforward positive. Inflation erodes purchasing power quietly, and for families on the border of phase-out ranges, the indexed amounts mean the program remains effective. No planning needed — just a beneficial automatic adjustment."
"The budget's focus on gender equality and female entrepreneurship was notable. From a tax perspective, the passive income rules were the headline story. We spent most of 2018 helping CCPC owners model the holding company restructure options and adjust their investment strategies."
Year-End Tax Planning Checklist
Based on the 2018 budget measures, here's what to consider before December 31:
- CCPCs: model your passive investment income to stay under the $50,000 threshold and preserve the small business deduction
- Consider distributing excess corporate cash as salary, dividends, or capital dividends before year-end if passive income is approaching the limit
- Families: confirm CCB indexation is reflected in your July 2018 payment amount