Seniors, savers, and small business corporations emerging as big tax winners in Canada’s pre-election budget document
The 2015 Federal Budget was the first for Finance Minister Joe Oliver, and it tabled a number of proposals that will impact the financial, tax and estate plans of Canadians. The following is a summary of the most relevant budget proposals that may impact you and your family.
NEW MEASURES IN THE APRIL 21, 2015 BUDGET
The Tax Free Savings Account (TFSA) Contribution Limit is raised from $5,500 to $10,000 effective January 1, 2015, making the cumulative maximum contribution available now $41,000. This is a welcome initiative for all Canadians and will benefit not only high income investors but also lower income Canadians who may find the TFSA a more attractive retirement planning vehicle than an RRSP.
The Registered Retirement Income Fund (RRIF) The Budget has addressed those concerns and will lower the RRIF minimum withdrawal factors that apply to those ages 71 to 94. These factors will now be based on a 5% nominal rate of return (reduced from the 7% rate that is currently being used) and 2% inflation indexing (up from the 1% rate that is currently being used). These are based on assumptions that are more consistent with long-term historical real rates of return and expected inflation. The factors will not change for those younger than 71, where the RRIF minimum is determined by the formula 1/(90 – age), or those 95 and older, where the RRIF minimum continues to be 20%.
A new Home Accessibility Tax Credit (HATC) will bring a 15% non-refundable tax credit to seniors (those age 65 or older) and disabled people (those eligible for the Disability Tax Credit) to supplement the costs of home renovations and improvements required for safety and accessibility. The credit will be available for expenditures made on or after January 1, 2016 to a maximum of $10,000 per year.
Registered Disability Savings Plan Changes. Qualifying family members will be allowed to continue to be the plan holder to the end of 2018 if the disabled person cannot enter into the contract.
T1135 – Foreign Asset Reporting is to be streamlined for 2015 and beyond for those with foreign assets valued under $250,000. This will be welcome news for seniors who rent southern properties or own significant financial assets offshore.
SMALL BUSINESS OWNERS
The Lifetime Capital Gains Exemption for Qualified Farm and Fishing Properties Every Canadian taxpayer is entitled to a lifetime capital gains exemption on the sale of shares of a qualified small business corporation (QSBC), or on the sale of qualified farm or fishing property. The amount of the Lifetime Capital Gains Exemption is currently $813,600 in 2015 and subject to annual indexation. Budget 2015 proposes to increase the Lifetime Capital Gains Exemption to $1 million for capital gains realized by individuals on the sale of qualified farm or fishing property. The current $813,600 exemption will remain on the sale of QSBC shares.
Employment Insurance (EI): Compassionate care benefits coverage will be increased from 6 weeks to 6 months, effective January 1, 2016. In addition, the EI premium rate will be subject to a seven-year break-even premium rate-setting mechanism starting in 2017 to ensure that EI premiums collected do not exceed the EI program payment demands over time. Over time this is expected to result in reduction in EI premium rates from $1.88 in 2016 to an estimated $1.29 in 2017.
Small Business Tax Rate is reduced from 11% to 10.5% effective January 1,2016, then 10% (2017), 9.5% (2018), and finally 9% on January 1, 2019. There is no change to Small Business Deduction limit of $500,000 active income for these purposes but changes have been made to non-eligible dividend gross-up and dividend tax credit rates to coincide with these changes.
The Accelerated 50% CCA for Manufacturing and Processing Equipment has been extended to 2026 and the claim will be made in new class 53.
Charities. The Capital Gains Exemption for donated shares has been extended to shares of private corporations and real estate, provided the transactions are at arms-length and subject to special GAAR rules over 5 subsequent years. Charities may now also be invested in Limited Partnerships