1994 Canadian federal budget

The budget was tabled only a few months after the 1993 Canadian federal election in which the Liberal Party led by Jean Chrétien received a large majority of the seats in the House of Commons. Paul Martin, Chrétien's main rival in the 1990 Liberal Party leadership election was appointed Minister of Finance.

On 8 February 1994, the prime minister Jean Chrétien delivered a surprise prime ministerial statement in the House of Commons to announce a federal action plan on tobacco smuggling:^[3]

Therefore, much as we may all regret the necessity of lowering cigarette taxes, we must do so at least until we have put the smuggling networks out of business. Then we will be able to restore the appropriate level of taxation that the situation needs.

Excise taxes on tobacco were dramatically reduced, with additional reductions in provinces that agreed to reduce their provincial excise taxes.^[a] Additional excise taxes were to be imposed on exported tobacco products, along with a surtax on tobacco manufacturing profits.^[b][5]

The budget reduced or repealed several tax incentives:^[6]

• The $100,000 lifetime capital gains exemption was repealed;
• The first $25,000 of employer-provided life insurance was to be considered a taxable benefit;
• The age tax credit was reduced;
• Only 50% of meals and entertainment expenses could be deducted (down from 80% pre-budget).^[c]

The budget also reduced several tax incentives:^[6]

• Investment Tax Credits rates were reduced;
  • The Special Investment Tax Credit and the regional component in respect of R&D were eliminated;
• R&D expenses and the small business deduction calculations were tightened for private corporations;
• New rules were implemented to limit tax avoidance during divisive corporate reorganizations.

Along with the reduction in the deductibility of meals and entertainment expenses, the proportion of GST that could be claimed on these expenses as an input tax credit was also reduced to 50%.^[5]