Currently, a stock option deduction of 50% of the gross stock option benefit is available to employees where qualifying criteria are met. The employer is not allowed to claim a tax deduction for the issuance of its shares. However, where the employee "cashes out" their stock option rights without first acquiring the underlying shares, the employee may still qualify for the 50% deduction and the related payment by the employer is fully deductible by the employer.

The Budget proposes to limit the 50% stock option deduction to the employee to situations where the employee first acquires the shares. Consequently, this 50% deduction will not generally be available where the employee cashes out their stock option rights without first acquiring the shares. Alternatively, the employer can elect to forego the deduction for the cash payment and thereby allow the employee to claim the 50% stock option deduction.

Currently, an employee of a non-CCPC (Canadian-controlled private corporation) can potentially elect to defer the applicable tax liability on the taxable stock option benefit where a stock option is exercised and the related shares are not sold. This deferral can apply to the benefit on up to $100,000 worth of stock options per year. The Budget proposes to repeal this tax deferral election for stock options. In addition, the existing withholding tax requirements will be clarified to ensure that the applicable tax on the stock option benefit is required to be withheld and remitted by the employer at the time the stock option is exercised.

Under current legislation, where the balance in a deceased annuitant's RRSP is payable to a surviving spouse or partner or an infirm financially dependent child or grandchild, the amount may be transferred to the beneficiary's RRSP and tax thereby deferred. The Budget proposes to extend this "rollover" treatment where the RRSP proceeds are transferred to a Registered Disability Savings Plan (RDSP) for the benefit of an infirm dependent child or grandchild.

Besides federal payments that are made to these plans, such as Canada Education Savings Grants for Registered Education Savings Plans (RESP) and Canada Disability Savings Grants for RDSPs, the provinces may also provide similar support to these plans. The Budget clarifies that such provincial payments are on equal footing with the federal subsidies and, accordingly, do not reduce the contribution room for private contributions to these plans.

Currently, only one individual, usually the mother, may receive the Canada Child Tax Benefit, Universal Child Care Benefit and the child component of the refundable Goods and Services Tax/Harmonized Sales Tax Credit, even where there is shared custody of the eligible child. Effective for benefits payable commencing July, 2011, these payments may be shared equally between two individuals who live separately where the child lives approximately equally with each of them. Each will receive one-half of the amount to which they would be entitled if they were the sole recipient. These credits will still be able to be received by one individual if the two parties so agree.

In a two-parent family, the $100 monthly UCCB for each child age five or under is included in the income of the lower income spouse. This disadvantages a single parent in that the tax on the UCCB could be significantly higher than for a two-parent family. Accordingly, for 2010 and subsequent years, a single parent receiving the UCCB will have the option of including the UCCB for all children in the income of the child for whom the eligible dependant credit is claimed. If no eligible dependant claim can be made, for example if the children's income is too high, the parent will have the option of including the UCCB for all children in the income of one of the children for whom it is paid.

For 2010 and subsequent years, the tax-free portion of a scholarship will be limited to the total of the fees paid to a designated educational institution for tuition and the cost of program-related materials where the taxpayer is enrolled in a part-time qualifying educational program. Scholarships awarded to disabled or infirm students enrolled in a part-time qualifying program will continue to be fully tax exempt. In addition, an amount will be eligible for the scholarship exemption only to the extent that it can reasonably be considered to be received in connection with enrollment in an eligible educational program for the duration of the period of study related to the scholarship.

Expenses for medical or dental services, including related expenses such as travel, which are purely for cosmetic purposes will not qualify for the medical expense credit effective for expenses. Expenses necessary for medical or reconstructive purposes will continue to qualify for the credit.

Prior to 1996, Canadian residents receiving US social security benefits were only required to include 50% of these benefits in income, pursuant to the Canada-United States Income Tax Convention. Tax changes in 1996 increased the inclusion rate for these benefits to 85%. The Budget proposes to reinstate the 50% inclusion rate for Canadian residents who have been in receipt of US social security benefits since before January 1, 1996 and for their spouses and common-law partners who are eligible to receive survivor benefits. This measure will apply to US social security benefits received on or after January 1, 2010.

The Budget proposes to extend eligibility for the mineral exploration tax credit for one year to flow-through share agreements entered into on or before March 31, 2011.

To better reflect their estimated useful life, satellite set-top boxes and cable set-top boxes that are currently governed by Class 8 (20% declining balance CCA rate) and Class 10 (30% declining balance CCA rate), respectively, will be eligible for a higher declining balance CCA rate of 40%. The Budget proposes to make this higher CCA rate available for such assets acquired after March 4, 2010 and that have not been used or acquired for use before March 5, 2010.

Taxpayers who acquire specified clean energy generation and conservation equipment after February 22, 2005 and before 2020 are permitted to treat these assets as Class 43.2 (50% declining balance CCA rate) property. With a view to further encouraging taxpayers to invest in energy generation equipment with low or zero emission levels, the Budget proposes to broaden the definition of Class 43.2 to include heat recovery equipment used in a broader range of applications and distribution equipment used in district energy systems that rely primarily on ground source heat pumps, active solar systems or heat recovery equipment. Lower-efficiency fossil-fuel-based distribution equipment will now be included in Class 43.1. These measures will apply to eligible assets acquired on or after March 4, 2010 that have not been used or acquired for use before that date.

If the majority of a project's tangible property qualifies for inclusion in Class 43.2, then certain project start-up expenses (for example, feasibility studies and engineering and design work) qualify as Canadian Renewable and Conservation Expenses. Canadian Renewable and Conservation Expenses can be fully deducted in the year incurred or transferred to investors using flow-through shares. A corporation must be a "principal business corporation" in order to transfer or "renounce" Canadian Renewable and Conservation Expenses to an investor using flow-through shares. Accordingly, to enhance investment in this sector, the "principal business corporation" definition has been expanded, effective for taxation years ending after 2004, to include corporations the principal business of which is any of distributing energy, fuel production or generating energy using Class 43.1 or Class 43.2 property.

To curb possible deliberate overpayments of tax by corporations to earn attractive rates of refund interest from the government, and to reduce its cost of borrowing funds, the prescribed quarterly rate of interest on amounts owing to corporations will no longer include the 2% premium above the prescribed quarterly rate of interest. This new lower interest rate for corporations will apply in respect of amounts including, but not limited to, income tax, Goods and Services Tax/Harmonized Sales Tax (GST/HST), employment insurance premiums and Canada Pension Plan contributions. The interest rates for non-corporate taxpayers will remain unchanged.

The Budget indicates that the government intends to review the framework for the taxation of corporate groups to assess if changes could be made in this area to improve the functioning of the tax system. Potential new rules will be explored, including a formal system of loss transfer or consolidated reporting. The government intends to solicit stakeholders' views before introducing any legislation.

Currently, tax rules exist to facilitate the conversion of specified investment flow-through (SIFT) trusts and partnerships into corporate form on a tax-deferred basis. Absent the conversion to corporate form, SIFT trusts and partnerships will be taxed on their distributions no later than 2011. The Budget contains measures intended to curtail what it perceives as inappropriate tax-loss trading using the SIFT conversion rules that would not be permitted between two corporations.

The Budget proposes a relieving measure to amend the definition of "taxable Canadian property" to exclude shares of corporations (and certain other interests) that do not derive their value principally from real estate situated in Canada, Canadian resource property and timber resource property in order to reduce deterrents to foreign investors to invest in Canada. This measure will eliminate, in most cases, purchaser withholding and section 116 certificate compliance obligations for these types of properties. It will also eliminate the existing requirement of a vendor to file a related Canadian tax return in instances where no Canadian tax liability exists in respect of the sale.

The Department of Finance is concerned that excessive foreign tax credits are being claimed with respect to interest income from foreign corporations. The Budget introduces proposals to deny these excessive claims.

The Budget contains new proposals to replace previous draft proposals pertaining to Foreign Investment Entities and Non-Resident Trusts. Taxpayers who voluntarily complied with the previous draft proposals for Foreign Investment Entities may choose either to have applicable previous years reassessed or may claim a deduction, in respect of any excess income previously reported, in its current year.

Current GST/HST legislation specifies that dental and surgical services for cosmetic purposes (not reconstructive or medical purposes) are taxable. This Budget proposes that all purely cosmetic procedures whether dental, surgical or otherwise will be subject to tax. If a cosmetic procedure is paid for by a provincial health insurance plan it will continue to be GST/HST exempt.

The 2009 Budget introduced a proposal for network sellers meeting certain criteria to utilize a special GST/HST simplified accounting method. This Budget proposes that new entrants to the direct selling industry can apply to the Minister to use this special GST/HST method and that host gifts supplied by network sellers to hosts will not be subject to GST/HST.

This Budget proposes to make Canada a tariff-free zone for industrial manufacturers by eliminating all remaining tariffs on machinery and equipment and goods imported for further manufacturing.

Currently, the disbursement quota rules require that the amount that a charity spends annually on charitable activities be at least the sum of:

• 80% of the previous year's tax-receipted donations plus other amounts relating to enduring property and transfers between charities (the "charitable expenditure rule")
• 3.5% of all assets not used in charitable programs or administration, if these assets ex-ceed $25,000 (the "capital accumulation rule")

The Budget proposes to reform the disbursement quota for fiscal years that end on or after March 4, 2010 by the following measures:

• repeal of the charitable expenditure rule
• modification of the capital accumulation rule
• strengthening of related anti-avoidance rules

The government intends to hold public consultations on proposals for a formal reporting process for certain so-called tax avoidance transactions. Details of the proposals and the consultation process will be released at the "earliest opportunity."

The purpose of the eventual legislation will be to institute a reporting mechanism in respect of potentially abusive transactions to enable the CRA to identify aggressive tax planning on a timely basis in order that existing anti-avoidance rules, such as the General Anti-Avoidance Rule (GAAR), can be applied, if warranted.