Canadian Federal Budget 2009
Canadian Federal Budget - 2009, a Summary
Canadian Federal Budget 2009 - A Tax Update
On January 27th, 2009, Finance Minister James Flaherty presented the minority government 2009 Federal Budget. This federal budget contains several measures of interest to individuals and businesses. The summary presented in this blog contains highlights of these budget proposals, which are not yet enacted.
Changes/ Measures Impacting Individuals:
Personal Tax Measures
Increase to the Basic Personal, Spousal and Eligible Dependant Amounts:
The basic personal amount, the spousal and common-law partner amount, and the eligible dependant amount increased from $9,600 in 2008 to $10,100 for 2009. The Budget 2009 proposes to further increase these amounts to $10,320 for the 2009 taxation year.
While the basic personal amount is not income tested, the spousal or common-law partner and dependant amounts are reduced by the net income of the spouse, common-law partner or dependant on a dollar for dollar basis.
Increase to Income Tax Brackets
Although no changes were announced to personal tax rates, the Budget proposes to increase the two lowest personal income tax brackets for 2009 beyond previously announced increases (which were based on inflation in 2008).
The personal bracket thresholds will continue to be indexed to account for inflation for the year 2010 and in the future years.
Increase to the Age Credit (a non-refundable tax credit)
The age credit provides a non-refundable tax credit for individuals who are 65 years of age or older. The age credit is calculated by multiplying the lowest personal tax rate (currently 15%) by an amount that is indexed on an annual basis. The 2009 Budget proposes to increase the amount upon which the age credit is based/calculated from $5,408 to $6,408 for 2009, with indexation of this age credit to be continued in the next years.
The net income level at which the age credit begins to be phased out at a rate of 15% remains unchanged at $32,312. With the proposed increase in the age credit amount, the income level at which the credit will be fully-phased out will increase from $68,365 to $75,032.
Tax Relief for Home Owners
Home Renovation Tax Credit
To encourage consumer spending and economic activity during this difficult time, the Budget proposes a temporary Home Renovation Tax Credit (“HRTC”), which will provide a 15% non-refundable income tax credit on eligible home renovation expenditures for work performed, or goods acquired, after January 27, 2009 and before February 1, 2010, pursuant or accordance with agreements entered into after January 27, 2009.
The credit may be claimed on the 2009 tax return for the portion of eligible expenditures that exceeds $1,000 but is less than $10,000, and will provide up to $1,350 in tax relief (i.e., 15% multiplied by ($10,000 minus $1,000)).
Family members will be subject to a single limit based on their pooled expenditures. For this tax credit purpose, a “family” will generally be considered to consist of an individual, his or her spouse or common-law partner, and their children who were, throughout 2009, under the age of 18 years. Eligible dwellings are generally restricted to personal-use homes including houses, cottages, and condominium units.
Expenditures eligible for the HRTC
The HRTC is generally restricted to enduring renovations and alterations. Individuals will need to keep receipts for all expenditures.
RSP Home Buyers’ Plan
The Home Buyers’ Plan (“HBP”) allows the owner of a registered retirement savings plan (“RRSP”) to withdraw amounts from their RRSP on a tax-free basis to purchase or build a home. The maximum amount that can currently be withdrawn from an eligible person’s RRSP under the HBP is $20,000; the Budget proposes that this withdrawal limit be increased to $25,000 with respect to withdrawals made after January 27, 2009.
To be eligible to avail of the HBP, the RRSP owner must be considered to be a “first-time home buyer”. You are not considered to be a first-time home buyer if, at any time during the period beginning January 1 of the fourth year before the year of the withdrawal and ending 31 days before the withdrawal, you or your spouse or common-law partner owned a home that you occupied as your principal place of residence. (There are special rules apply where the home is being acquired for the needs of a disabled person.)
An HBP participant must repay amounts that were withdrawn under the HBP to his or her RRSP over a 15-year period, or the unpaid amounts will be included in his or her taxable income (unpaid amounts for a particular year will be considered as taxable income).
First-Time Home Buyers’ Tax Credit (a new non-refundable tax credit)
The Budget proposes a new non-refundable tax credit for first-time home buyers who acquire a qualifying home after January 27, 2009. (The closing date for the purchase of the home must be after that date in order for the tax credit to be available.) The amount upon which the tax credit is calculated is $5,000, multiplied by the lowest personal income tax rate for the year (15%).The First-Time Home Buyers’ Tax Credit may be claimed in the year in which the home is acquired.
A “qualifying home” is a home that is eligible under the Home Buyers’ Plan, and which the person or the person’s spouse or common-law partner intends to occupy as their principal place of residence not later than one year after the acquisition.
This new tax credit will also be available for the acquisition of a home acquired after January 27, 2009 either by an individual who is eligible for the Disability Tax Credit (“DTC”) or by an individual for the benefit of a relative who is eligible for the DTC. The home must be acquiredto enable the DTC-eligible individual to live in a more accessible dwelling or in an environment better suited to the person’s needs.
The First-Time Home Buyers’ Tax Credit may be claimed either by the person who acquired the home or by his or her spouse or common-law partner. If a qualifying home is purchased jointly, the total amounts claimed by the couple cannot exceed the credit that could be claimed if only one individual had acquired the home (as mentioned maximum of $5000 multiplied by 15% as federal tax credit).
Other tax changes in Budget 2009 that will benefit individuals:
The National Child Benefit Supplement and Canada Child Tax Benefit
The Budget proposes to increase by $1,894 the amount of income that families may earn before the National Child Benefit Supplement (“NCBS”) is fully phased out, or before the Canada Child Tax Benefit (“CCTB”) begins to be phased out.
Specifically, for the 2009–10 benefit year, the income level at which the phase-out of the CCTB begins will increase to $40,726 (based on combined family income), and the income level at which the phase-out of the NCBS begins will increase by $1,894 such that it is completely phased out by $40,726 for the majority of families. This change is proposed to take effect for the 2009-2010 benefit years, which begins in July 2009.
RRSP and RRIF Losses after Death
Upon the death of the owner of an RRSP or a RRIF, the fair market value of the registered account owner at the date of death is included in the deceased’s income for the year of death. Any increase in the value of the RRSP or RRIF assets from the date of death to the date that the assets are distributed is taxable to the beneficiaries.
However, there is no provision under the Income Tax Act to recognize a decrease in value of the RRSP or RRIF assets that occurs after the date of death to the date the assets are distributed.
In light of the recent market developments, Budget 2009 proposes that, upon the final distribution of the RRSP or RRIF assets, the amount of any post-death decrease in the value of the RRSP or RRIF assets may be carried back and deducted against the RRSP or RRIF amount that was reported as income on the final tax return (terminal return) of the deceased. The amount that can be carried back as a deduction is equal to the difference between the fair market value of the RRSP or RRIF at the date of death and the total amounts paid out of the RRSP or RRIF after the death of the RRSP/RRIF owner.
This measure will apply with respect to a deceased person’s RRSP or RRIF where the final distribution from the RRSP or RRIF occurs after 2008.
Enhanced/Extended Employment Insurance (EI) Benefits
The 2009 Budget proposal:
Freeze Employment Insurance (“EI”) employee premium rates for 2010 at $1.73, the same rate as 2009; and increase all regular EI benefit entitlements by five extra weeks to a maximum of 50 weeks for the next two years to provide relief for individuals.
Temporary Relief Regarding Re-Contribution of RRIF Minimums
Last November 27, 2008 the Minister of Finance proposed that the minimum annual payout for 2008 applicable to a RRIF owner would be reduced by 25% to provide relief to seniors.
The proposal would allow a RRIF owner who had made a withdrawal from the RRIF in 2008 to re-contribute up to 25% of the "normal" RRIF minimum to a RRIF or to an RRSP (subject to age restrictions) and be able to claim a tax deduction for this re-payment amount on account of the market developments.
In the 2009 Budget, the federal government has confirmed its intention to proceed with the introduction of legislation to enact these proposals.
Business Tax Measures
The 2009 Federal Budget included several tax measures that provide relief to Canadian Controlled Private Corporations (CCPC's).
Small Business Limit
The Budget proposes to increase the small business limit from $400,000 to $500,000 as of January 1, 2009. The increase in the limit will be pro-rated for corporations with taxation years that do not coincide with the calendar year.
Accelerated Capital Cost Allowance
Manufacturing and Processing
The Budget proposes to extend the 50% straight-line accelerated capital cost allowance (“CCA”) rate for eligible assets for two more years to include 2010 and 2011. The half-year rule will apply to manufacturing and processing assets subject to this measure.
Computers (accelerated Capital Cost Allowance "CCA")
The Budget proposes a temporary 100% CCA rate for eligible computers and software acquired after January 27, 2009 and before February 2011, an increase from the current rate of 55%.These items will not be subject to the half-year rule, so a business can fully deduct the cost of an eligible computer and the systems software in the first year.
Electronic Filing and Penalties
The Budget 2009 proposes that corporations with annual gross revenues in excess of $1 million for a taxation year after 2009 will be required to file their income tax returns for the year in electronic format.
The Budget proposes to also introduce a penalty for filing a corporate income tax return in an incorrect format, although no penalties will be introduced until 2011.
This article is presented for general information only. Consult your financial advisor for advice regarding your specific financial situation.
Labels: canadian federal budget 2009, Canadian Taxation, financial planning, retirement, tax planning, tax upates 09
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