1991 Canadian federal budget

Summarize Timeline Fact Check

The budget did not bring sweeping tax changes after the consequential 1987 Income tax reform and the introduction of the GST on January 1, 1991.

Minor changes focused on improving tax incentives to disabled individuals and included:^[3]

• Increase to the Disability Tax Credit from $575 to $700 and indexation after the 1991 Fiscal year ;^[4]
• Amendments to the medical expenses deduction rules to include previously non-deductible expenses (for instance part-time attendant care, trained service animals, incontinence products);^[5][6]
• Costs incurred by businesses to modify their premises to accommodate disabled persons are now fully deductible in the year of installation;^[7]
• Changes to taxable benefits rules to exclude reasonable amounts provided for the transportation of disabled employees.^[8]

The budget announced a restriction on the deductibility of provincial payroll and capital taxes.^[9] ndeed, these taxes – unlike provincial corporate income taxes − were considered fully deductible expenses for federal income tax purposes. Several provinces (for instance, Ontario) raised their payroll taxes in the early 1990s to raise additional revenues. This, while minimizing impact on businesses that could partially offset the increase by claiming a federal tax deduction. These deductions were costing the federal government about $700 million per year.^[10]

The budget laid out the following provisions:^[11]

• A cap of $10,000 for the deductibility of provincial payroll and capital taxes ;
• A 6% tax allowance for taxable income in excess of the $10,000 cap ;
• The new measures are phased-in over 1992 and 1993 with full effect to take place on January 1, 1994:^[12]
  • In 1992 corporations are allowed to deduct 2/3 of provincial capital and payroll taxes and the lesser of 1/3 of the taxes paid or $10,000. The tax allowance is set at 2% ;
  • In 1993 they are allowed 1/3 of provincial taxes and the lesser of 2/3 of the taxes paid or $10,000. The tax allowance is set at 4% ;
  • In 1994 the lesser of the taxes paid or $10,000 is deductible and the allowance is set at 6%.

The $10,000 limit would preserve deductibility for 80% of businesses (those with a payroll less than $750,000 a year) and the 6% tax allowance would ensure Ottawa would not collect additional taxes for the 20% remaining businesses if the payroll and capital taxes rate remain at their budget date level.^[10]

Legislation to implement these measures was indefinitely delayed and they have never been in effect for capital taxes.^[13]

Effective February 27, 1991:^[14]

• Excise tax on cigarettes is increased by 3% ;
• Excise tax on cigares is increased from 40 to 65% of the price.