Finance Minister Joe Oliver delivered his first Federal Budget on Tuesday, April 21, 2015. Being that it is an election year, it was not surprising that there were plenty of proposals that would appeal to a variety of voters. Of course, this is in addition to the announcements in the Fall 2014 Economic Statement (See sidebar).
For this summary, we focus on the key items relevant for financial advisors and their clients.
Tax-free savings account
As expected, the government has followed-through on the 2011 election campaign promise to double annual TFSA contribution room. As of Budget Day that figure was $5,500, so this could have meant an increase to as much as $11,000, but the chosen figure was an even $10,000. This applies for 2015 and subsequent calendar years, but there will no longer be any inflation indexing.
TFSA contribution room
2009-2012 2013-2014 2015-on
Annual dollar limit $5,000 $5,500 $10,000
Indexing ($500 increments) Yes Yes No
Registered retirement income fund relief
Relief on RRIF minimum withdrawals has long-been requested by seniors’ advocates. As shown in the table, mandatory minimums have now been adjusted downward for ages 71 to 100, by close to a 30% reduction at the younger end. Those who may have already made the higher withdrawal this year under existing factors will be allowed to re-contribute the excess by no later than February 29, 2016.
There will be no change for ages 70 and under, which will continue to be determined by the formula 1/(90 – age).
RRIF minimum withdrawal factors (percentages)
RDSP legal representation
In 2012, the federal government introduced a temporary measure to allow a qualifying family member (i.e., a beneficiary’s parent, spouse or common-law partner) to become the plan holder of a Registered Disability Savings Plan for an adult who may lack the capacity to enter into a contract. As some provinces and territories have yet to put necessary rules in place, the measure is being extended from its original horizon date of 2016 out to 2018.
Small business tax rate
In a surprising (at least among those with whom I spoke during the Budget Lockup) but welcome move, the small business tax deduction is being increased by 0.5% each year from 2016 to 2019. Put another way, the resulting small business rate on the first $500,000 per year of qualifying active business income of a Canadian-controlled private corporation (CCPC) is going down from 11% to 9%.
In turn at the shareholder level, the gross-up and dividend tax credit for non-eligible dividends will both be adjusted. As provincial tax calculations use the federally-defined gross-up, expect the provinces to address this by adjusting respective provincial dividend tax credits.
Table: Small Business Tax Rate Reduction and DTC Adjustment for Non-Eligible Dividends
2015 2016 2017 2018 2019
Small business rate 11% 10.5% 10% 9.5% 9%
Gross-up 18% 17% 17% 16% 15%
DTC 11% 10.5% 10% 9.5% 9%
Increased LCGE for qualified farm or fishing property
The lifetime capital gains exemption for qualified farm or fishing property will increase. For dispositions that occur on or after Budget Day, April 21, 2015, it will be the greater of $1 million and the annually-indexed LCGE applicable to small business corporation shares (currently $813,600 in 2015).
Donations involving private corporation shares or real estate
The Budget proposes to allow an exemption from capital gains tax where proceeds of disposition of private corporation shares or real estate are donated to charity within 30 days after disposition. The purchaser must be at arm’s length from both the donor and donee, among a number of stringent qualification criteria. This measure will apply to donations made in respect of dispositions occurring after 2016.
Tax compliance and administration
Streamlining reporting for foreign assets
In 2013, the Canada Revenue Agency (CRA) introduced a revised Form T1135 for foreign investments with a cost base of at least $100,000. Acknowledging that this has resulted in a disproportionate compliance burden for some taxpayers, a streamlined procedure and form is being developed for those with foreign investments of less than $250,000 cost base. The new procedure and form will be made available for taxation years that begin after 2014.
Intra-CRA tax information sharing
The CRA collects debts owing to the federal and provincial governments under a number of non-tax programs. The CRA will be given authority to internally exchange confidential taxpayer information to manage collections efforts. Amendments will be made to the Income Tax Act, provisions related to GST/HST, and excise duties on tobacco and alcohol.
International information exchange
Beginning in 2018, Canada will begin exchanging tax information with G-20 countries in respect of financial accounts. Financial institutions will be expected to have procedures in place by July 1, 2017 to identify accounts held by residents of any country other than Canada and to report the required information to the CRA.
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SIDEBAR: Fall 2014 Economic Statement
These measures (mainly of interest to families with minor age children) were introduced before the release of the 2015 Budget, and are either claimable for 2014 tax filing, or payable retroactive to the beginning of 2015.
Family Tax Cut
- Tax credit worth up to $2,000 based on a notional transfer of up to $50,000 income between parents where a child under the age of 18 resides in the household
Universal Child Care Benefit (UCCB)
- Increase of $60 to $160 monthly for children under six
- New $60 monthly payment for children six through seventeen
Child Tax Credit (CTC)
- Repealed, as it is effectively replaced by the UCCB additions
Child Care Expense Deduction dollar limits
- Increased by $1,000 per child
Children’s Fitness Tax Credit (CFTC)
- Doubled for 2014, from $500 to $1,000.