1976 Federal Budget — Grab Bag of Tax Changes

CIM Bulletin, Vol. 69, No. 773, 1976

R. D. Brown, FCA, Price Waterhouse & Co., Toronto, Ontario

Finance Minister Donald Macdonald's budget of May 25, 1976 featured a restructuring of the anti-inflation profit controls and a grab bag of tax changes, some of direct interest to the mining industry. All Canadian taxpayers now will be permitted to write off immediately 100% of mineral and oil and gas exploration expenses incurred after May 25, 1976 and before July 1, 1979. The cost of acquiring Canadian resource property after May 6, 1974 from, a federal or provincial government will now clearly be included in Canadian development expense, and provincial drilling and exploration incentives received after May 25, 1976 will not reduce exploration and development expense for federal income tax purposes. Under tough new anti-inflation profit controls, all controlled businesses, except distributors, will essentially have one uniform set of rules for determining allowable profit margins; this allowable margin will be determined by product line or by over-all net margin and will be 85% of the higher of the -margin obtained in the five years preceding October IS, 1975 or the one year preceding May 1, 1976. The basic capital cost allowance system is to continue, but many rates will be revised. The ability to offset losses created through claiming capital cost allowances on leased equipment, etc. against other income will be ended with respect to transactions entered into after budget night. Miscellaneous other tax changes will raise the low rate base for Canadian-controlled private corporations to $750,-000, increase retirement plan contribution limits and reduce the rate of branch tax imposed on branches of corporations resident in a country with which Canada has a comprehensive tax treaty to equal the withholding tax rate on dividends under that treaty.