How the 2011 budget will affect Canada's industries:
The government says it will extend for one more year the 15-per-cent Mineral Exploration Tax Credit that had been scheduled to expire at the end of this month. The 12-month extension of the credit, which gives investors an extra reason to invest in flow-through shares issued by junior mining exploration firms, is estimated to cost Ottawa $90-million in lost tax revenues.
The federal government is tightening rules on charitable giving, including limiting the benefit to taxpayers of donating flow-through shares. That move alone will save taxpayers $185-million over five years, according to budget documents. Right now, taxpayers can donate flow-through shares to charities at minimal after-tax cost by writing off large capital gains they otherwise would have to pay. From now on, the capital gain write-off will be capped.
Flow-through shares allow resource companies, such as oil and gas firms, to pass along generous tax benefits to investors, who are then subject to often hefty capital gains tax when they sell the shares. Investors have been able to duck what the government calls the "normal" recovery of the tax benefits by giving them to charities.
The government said the generosity of the existing tax regime for charitable donations has made it a target for abuse. The aim is to make sure that only legitimate charities benefit from tax breaks.
Among other measures, Ottawa is imposing stricter rules on a range of unregistered charities, including amateur athletic associations, municipal organizations. If these organizations want to issue official tax receipts from now on they'll have to register with the Canada Revenue Agency.
The federal government is removing tax incentives for oil sands producers to invest in new projects - but will phase in the changes over five years.
Finance Minister Jim Flaherty took aim at two measures that allow companies to take accelerated write-offs from pre-production investments.
Ottawa said the planned changes are part of an international commitment to reduce subsidies on fossil fuels.
"Together, the two measures . . . will improve fairness and neutrality in the taxation of oil sands relative to conventional oil and gas and other sectors of the economy," Finance Canada said in its budget document.
"These changes will help ensure that investment decisions are based on market factors rather than income tax treatment."
The Harper government moved in 2007 to phase out the accelerated capital cost allowance from production-related investment in the oil sands.
In this year's budget, Mr. Flaherty targeted the so-called intangible capital expenses, including the cost of acquiring leases, or the right to explore and develop properties, and the cost of clearing the land for a new oil sands mine.
Those expenses are now deductible at a rate of 30 per cent a year, but that will decline to 10 per cent a year - comparable to such write-offs on the conventional side of the business.
FEDERALLY REGULATED COMPANIES
The government intends to introduce amendments to the Canadian Human Rights Act and the Canada Labour Code to prohibit federally regulated employers from setting a mandatory retirement age unless there is a bona fide occupational requirement, a move that potentially could have implications for companies such as Air Canada.
"This will allow Canadians to choose how long they wish to remain active in the labour force," the budget states, adding that the government will review other laws to further this objective.
The government says it will conduct a comprehensive review of all of the policies and programs related to the aerospace and space industry, a move that will have implications for companies such as Bombardier and its numerous suppliers.
The end result will be the development of a federal policy framework designed to maximize the competitiveness of the sector, which is export-oriented and in which Canada is a global technology leader, Ottawa says.
Going forward Ottawa will consider using a public-private partnership (P3) for all large federal capital projects.
"All infrastructure projects creating an asset with a lifespan of at least 20 years, and having capital costs of $100-million or more, will be subjected to a P3 screen to determine whether a P3 may be a suitable procurement option," the budget states. "Departments will also be encouraged to explore the potential of P3 approaches for other types of projects and procurements of services."
Examples of recent projects implemented as P3s include the new Royal Canadian Mounted Police E Division Headquarters in Surrey, B.C., and the Communications Security Establishment Canada long-term accommodation project in Ottawa.
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