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Federal budget 2015

On April 21, 2015, Finance Minister Joe Oliver presented the 2015 Federal Budget which contains several measures of interest to Investors Group and its clients. This summary contains highlights of these proposals, which are not yet law. Clients should contact their Investors Group Consultant for information on how these proposals may affect their financial plans.

Proposals Impacting Individuals

Tax-Free Savings Account (TFSA) limit increased – The Budget proposes to increase the annual TFSA contribution limit from $5,500 to $10,000, effective January 1, 2015.  As a result of this one-time increase, the TFSA annual contribution limit will no longer be indexed to inflation.  For information on why you should have a TFSA, see “Yes – A TFSA can work for you”.  For a review of some planning opportunities, see “Is it better to contribute to investments held within an RRSP or a TFSA?

RRIF Minimum Annual Payments Reduced for Persons age 71 or Older – A Registered Retirement Income Fund (RRIF) must pay out a minimum amount each year, starting in the year after the RRIF is established, based on the age of the RRIF owner (or the age of the owner’s spouse).  For ages up to 70, the RRIF minimum is equal to the value of the RRIF at the beginning of the year multiplied by 1/(90 minus the age at the beginning of the year).  For ages 71 and above, the Income Tax Act provides a table of minimum payment factors.  The applicable factor, which varies by age, is multiplied by the value of the RRIF at the beginning of the year to determine the RRIF minimum for the year.   The Budget proposes that this table be revised, effective for 2015 and subsequent years. The existing and new factors are as follows:

Age at start of year Existing factor  New factor Reduction in factor
71 7.38% 5.28% 2.10%
72 7.48% 5.40% 2.08%
73 7.59% 5.53% 2.06%
74 7.71% 5.67% 2.04%
75 7.85% 5.82% 2.03%
76 7.99% 5.98% 2.01%
77 8.15% 6.17% 1.98%
78 8.33% 6.36% 1.97%
79 8.53% 6.58% 1.95%
80 8.75% 6.82% 1.93%
81 8.99% 7.08% 1.91%
82 9.27% 7.38% 1.89%
83 9.58% 7.71% 1.87%
84 9.93% 8.08% 1.85%
85 10.33% 8.51% 1.82%
86 10.79% 8.99% 1.80%
87 11.33% 9.55% 1.78%
88 11.96% 10.21% 1.75%
89 12.71% 10.99% 1.72%
90 13.62% 11.92% 1.70%
91 14.73% 13.06% 1.67%
92 16.12% 14.49% 1.63%
93 17.92% 16.34% 1.58%
94 20.00% 18.79% 1.21%
95 and older 20.00% 20.00% 0%

A RRIF owner who withdraws more than the new minimum amount in 2015 will be able to re-contribute to the RRIF an amount up to the reduction in the RRIF minimum withdrawal amount. This re-contribution must be made on or before February 29, 2016 and will be deductible for the 2015 taxation year. 

Employment Insurance – The Budget proposes to implement measures intended to ensure that EI premiums are no higher than needed to pay for the EI program over time.  As a result, EI premium rates for employees are expected to be reduced from $1.88 per $100 of insurable earnings in 2016 to an estimated $1.49 in 2017.

The Budget also proposes to increase EI Compassionate Care Benefits from six weeks to six months to better support those who care for parents and elderly relatives, as of January 2016.

Foreign property reporting – If a Canadian resident taxpayer owns “specified foreign property” with a total cost of greater than $100,000, then the taxpayer must complete CRA form T1135, Foreign income verification statement.  This form was substantially revised in 2013 and is rather complex.  Effective for the 2015 taxation year, the Budget proposes to create a simplified reporting scheme for taxpayers whose specified foreign property has a total cost of less than $250,000.  The current T1135 reporting requirements will continue to apply to taxpayers whose specified foreign property has a total cost of greater than $250,000. (The Budget does not clearly state that taxpayers whose specified foreign property has a total cost of less than $100,000 will continue to be exempt from reporting their foreign property, but it is implied.) As a reminder, Canadian mutual funds such as those offered through Investors Group are not considered to be “specified foreign property”, even if the fund invests exclusively in foreign property.

Enhancing Canada Student Loans – At present, the Canada Student Loans Program reduces the loan amount on a dollar-for-dollar basis with respect to the student’s earnings that are in excess of $100 per week.  The Budget proposes to remove this penalty for working by eliminating student income from the needs assessment process.  For example, if the student was earning $200 a week, the financial assistance is currently being reduced by $100 per week. Under the proposed change, the student will be eligible to receive an additional $100 a week in Canada Student Loans.

Home Accessibility Tax Credit – The Budget proposes to allow seniors and persons with disabilities to claim a new non-refundable tax credit of 15% on a maximum of $10,000 of eligible expenditures incurred after 2015 in respect of a renovation or alteration on their primary residence for the purpose of increasing their access, mobility, function or safety. The credit is also available to related caregivers or persons who can claim the eligible dependant amount, caregiver amount or infirm dependant amount in respect of a senior or person with a disability.

Proposals Affecting Farmers and Fishers

Capital Gains Exemption for Qualified Farm or Fishing Property – The Lifetime Capital Gains Exemption (LCGE) is available on the disposition of qualified small business corporation shares and qualified farm or fishing property.  The exemption for 2015 is $813,600 and is indexed annually to inflation.

The Budget proposes to increase the LCGE limit to $1,000,000 for qualified farm or fishing property, effective for dispositions on or after April 21, 2015.  This proposed limit will not be indexed to inflation until the indexed LCGE applicable to capital gains realized on the disposition of qualified small business corporation shares has also reached $1,000,000. 

Proposals Impacting Business Owners

Small business tax rate and non-eligible dividend taxation – The small business tax rate applies to the first $500,000 of qualifying active business income of a Canadian-controlled private corporation (CCPC).  The Budget proposes to reduce the current small business tax rate of 11% by 0.5% per year beginning January 1, 2016 until it reaches 9% effective January 1, 2019.  These reductions will be pro-rated for corporations with taxation years that do not coincide with the calendar year.

In conjunction with the proposed reduction in the small business tax rate, the Budget proposes to adjust the gross-up factor and the tax credit rate that apply to non-eligible dividends [generally dividends that are distributed to shareholders from active income that has been taxed at the small business tax rate or from investment income (most interest, rent, royalties and foreign dividends)].  These changes will also be made in stages beginning in 2016 and ending in 2019.  The result will be an increase in the personal tax rate applicable to non-eligible dividends.

  2015 2016 2017 2018 2019
Small business tax rate 11% 10.5% 10% 9.5% 9%
Gross-up rate 18% 17% 17% 16% 15%
Dividend tax credit rate * 11% 10.5% 10% 9.5% 9%

* Expressed as a percentage of the grossed-up amount of a non-eligible dividend

Proposals Impacting Charities and Charitable Donations

Donations of Private Corporation Shares or Real Estate – At present, gifts of private corporation shares or real estate to a charity can result in a taxable capital gain, whereas the capital gains applicable to gifts to a charity of publicly-traded securities, ecologically-sensitive lands, and certified cultural property are not subject to tax.  The Budget proposes to provide an exemption from tax on capital gains with respect to certain dispositions of private corporation shares and real estate occurring after 2016.  The exemption will be available where:

  • The private corporation shares or real estate are sold to a purchaser who deals at arm’s length with both the donor and the applicable qualified donee; and
  • The cash proceeds of the disposition of private corporation shares or real estate are donated to a qualified donee within 30 days after the disposition.

The portion of the capital gain that will be exempt from tax is equal to the cash proceeds donated divided by the total proceeds of the sale of the shares or real estate. There will be “anti-avoidance” rules established to deny the exemption when the sale is followed by certain non-arm’s length transactions.

Gifts to Foreign Charitable Foundations – A donation made to a “qualified donee” (which includes Canadian registered charities) is eligible for a tax credit (if made by an individual) or a deduction (if made by a corporation).  Under existing legislation, only a foreign organization could be a “qualified donee”. The Budget proposes that foreign charitable foundations be permitted to be registered as “qualified donees”, where:

  • The foundation has received a gift from the Government of Canada; and
  • The foundation is engaged in disaster relief activities or urgent humanitarian aid, or is carrying out activities in the national interest of Canada.

An eligible foundation can apply for qualified donee status, which is granted for a 24 month period.  These proposals will apply when the enacting legislation has received Royal Assent.

This report specifically written and published by Investors Group is presented as a general source of information only, and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide legal or tax advice. Clients should discuss their situation with their Consultant for advice based on their specific circumstances.

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