Canadian Interest

How Budget 2013 will affect your pocketbook

March 21, 2013

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Federal Finance Minister Jim Flaherty tabled the Federal Budget in Parliament today. Unlike previous budgets, there is nothing concrete to report but there are some interesting measures that may impact your pocketbook.

Another Budget, Another Tax Credit

Budget 2013 introduces a new temporary tax credit called the First-time Donor’s Super Credit (FDSC). A first-time donor is an individual (or her spouse or common-law partner) who has not claimed the Charitable Donations Tax Credit (CDTC) or FDSC in any taxation year after 2007. The first-time donor will be allowed to claim a 25 percent tax credit on up to $1,000 of donations once in 2013 or a subsequent tax year before 2018.

Deduction for Safety Deposit Boxes Eliminated

Currently, tax payers are allowed to deduct expense incurred for renting a safety deposit box provided they use it to store and protect papers relating to the portfolio. These days most records are available in electronic form and the importance of paper copies is declining. Therefore, starting in Financial Year 2014, the cost renting safety deposit boxes cannot be deducted as a carrying charge on the income tax return.

Increase in Tax on Non-Eligible Dividends

A non-eligible dividend refers to income received from corporations that are not taxed at the general corporate rate (such as private, small business corporations). If all you receive are mostly dividends from Canadian public companies, this measure will not impact you.

Budget 2013 proposes to reduce the gross-up factor applicable to non-eligible dividends from 25 percent to 18 percent. The Dividend Tax Credit will change from 2/3 of the previous gross-up amount to 13/18 of the new gross-up. The combined effect of this measure will increase the personal tax rate on non-eligible dividends received from corporations. (Note: KPMG reported that the net result of this measure will increase the federal effective tax rate on non-eligible dividends to 21.22 percent from 19.58 percent).

Crackdown on Charitable Donation Tax Shelters

It appears that Budget 2013 is proposing measures that may turn out to be final nail in the coffin of Charitable Donation Tax Shelters. First, the Budget proposes to extend the reassessment period for a participant in a tax shelter by three years to six years. Second, the Budget permits CRA to collect 50 percent of the any tax, interest or penalties resulting from a reassessment of a participant in a tax shelter even if a notice of objection is filed.

Hasta La Vista to Labour-Sponsored Venture Capital Funds

Labour-Sponsored Venture Capital Funds have, in general, turned out to be a poor investment for Canadians. Therefore, it is heartening to see that Budget 2013 is proposing to eliminate the 15 percent Federal Tax Credit for investments of up to $5,000 in Labour-Sponsored Venture Capital Funds gradually by 2017.

There are other interesting measures in the Budget regarding reporting requirements for foreign assets that we will take a look at in future posts. Meanwhile, if you are looking for some bedtime reading, you can find the entire Budget 2013 document here.

The Penny, Not the Cent will be Gone

April 2, 2012

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There appears to be quite a bit of confusion surrounding the announcement made in Budget 2012 that the penny would be eliminated from our coinage system. Some Canadians believe that by eliminating the penny, businesses would always round up the cost of individual items and hence drive up prices. That is not quite true.

The Federal Government is simply going to stop producing and distributing pennies as of Fall 2012. Existing pennies will remain in circulation but over time, as the supply of pennies diminishes, businesses will resort to rounding off on cash transactions. Here’s an example: You walk into a dollar store and purchase an item selling for $1.25. Add 13% HST and the final tally is $1.4125. If you are paying cash, the store will round down the price to $1.40. Another customer buying 11 items and paying cash will be charged $15.55 ($15.5375 rounded up), not $15.95 ($1.4125 rounded up to $1.45 * 11). There is already many good examples of this principle at work such as gas prices, which often have a lowest unit of a tenth of a cent.

The eventual elimination of the penny will have no effect on credit, debit, cheque and electronic payments, where the cent will remain the smallest pricing unit. And even if every single retailer refuses to play ball and opts to round up the total final cost to the nearest nickel, it is a cost well worth paying for the hassle of dealing with those pesky pennies.

Budget 2012: Changes to Old Age Security

March 29, 2012

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The increase in the age of eligibility of the Old Age Security program in Budget 2012 was widely telegraphed in advance but there were still a few surprises. Here are the other major initiatives introduced by Finance Minister Jim Flaherty in Budget 2012:

Travellers’ Exemptions Increased

The travellers’ exemption is a dollar limit that Canadian residents can bring back after a trip abroad without having to pay customs duties or sales taxes. Budget 2012 proposes that the Travellers’ Exemption limits will increase to $200 for an absence of more than 24 hours (current limit: $50), $800 for an absence of more than 48 hours (current limit: $400) and $800 for an absence of more than 7 days (current limit: $750).

Increase in Old Age Security Age of Eligibility

Starting in April 2023, the age of eligibility for OAS and GIS will be gradually increased from 65 to 67. In other words, Canadians who were born on or after Feb. 1, 1962 can expect to receive OAS benefits at age 67. The age of eligibility will gradually rise for Canadians who were born between April 1, 1958 and January 31, 1962. The OAS age of eligibility remains unchanged for Canadians born before March 31, 1958.

New Option to defer Old Age Security

Budget 2012 proposes that starting on July 1, 2013, Canadians can opt for a voluntary deferral of OAS for up to 5 years and receive an actuarially adjusted higher pension. Here’s an example provided in the Budget document:

Rita will be turning 65 in December 2013. She plans to continue working as long as she can. She prefers to forgo her OAS pension for the maximum deferral period of five years so that she can have a substantially higher annual pension amount, starting at age 70. When she takes up her OAS pension at age 70, her annual pension will be $8,814 instead of $6,481 (in 2012 dollars).

Eliminating the penny

As of Fall 2012, the Government will no longer distribute pennies. Good riddance!

Workforce adjustments

The Federal Government is planning to reduce its headcount by 19,200 over a three-year period, a number that includes attrition. Most of the job reductions will occur in the National Capital Region.

Adjustments to Public Sector Pension Plans

The Government is proposing that public sector employees contribute 50 percent to their pension plans over time (IIRC, the current employee contribution target is 40 percent). Starting in 2013, employees joining the public service will see the age of retirement raised from 60 to 65.

Other changes that maybe of interest in the Budget include protection of long-term disability plans and improvements in the registered disability savings plan.