This summary is intended to highlight the aspects of the budget that will affect some or all of our clients. It is not meant to be a comprehensive outline and analysis of the budget.
Personal income tax rates
There were no changes made to personal income tax rates, although tax brackets have been indexed by 2% to reflect the impact of inflation.
First-time donor’s super credit.
If you or your spouse or common-law partner have not made a charitable contribution since 2007 you are eligible to receive a one-time super tax credit for contributions up to $1,000. The donation must be made after budget day (March 21, 2013) and before 2018. The resulting benefit would be a 40% tax credit on the first $200 of donations and 54% on the next $800.
Lifetime capital Gains exemption
The budget proposes to increase the $750,000 lifetime exemption by $50,000 to $800,000. The limit will be inflation indexed for 2015 and subsequent years. This exemption is available only for dispositions of qualified small business shares, qualified farm property and qualified fishing property after 2013. If you already claimed the maximum exemption, the incremental new higher limits are available to you going forward.
Deduction for safety deposit boxes.
This deduction has been eliminated.
Dividend tax credit
The highest marginal tax rate on non-eligible dividends (typically paid to shareholders of a qualified small business) will increase from 19.58% to 21.22% after 2013.
Foreign reporting requirements
If you own specified foreign property with a cost that exceeds $100,000, you must file form T1135.
You can see the list of property that must be reported on the second page of the T1135 form.
For the majority of Canadians, property that they will have to report includes:
- Funds in foreign bank accounts
Shares of Canadian corporations on deposit with a foreign broker; (not including U.S. IRA accounts) - Shares of non-resident corporations held in certificate form or on deposit with a Canadian or foreign broker; (for example, US stocks like Apple, Coca Cola, etc.)
- Land and buildings located outside Canada, such as a foreign investment property; (this does not include property that is for personal use primarily)
An interest in or a right to any specified foreign property, such as a foreign Trust
Character conversion transactions and corporate class funds
This refers to financial arrangements that attempt to convert ordinary income into capital gains, through the use of financial derivatives. Many corporate class fixed income mutual funds use such arrangements to minimize the tax burden for investors. As such, as these derivative contracts expire, the tax-efficiency of these funds will be reduced, albeit they will still hold a structural advantage as compared to mutual fund trusts and ownership of individual securities in non-registered accounts.
Taxes in dispute and charitable donation tax shelters
CRA is generally prohibited from initiating collection action in respect of assessed income taxes, penalties and interest in cases where taxpayers have formally objected to the assessment. In order to discourage participation in charitable donation tax shelters deemed offensive by CRA that lead to prolonged litigation and delayed tax collection, the budget proposes to allow CRA to collect up to 50% of the disputed amount pending ultimate determination of the tax liability. This measure will apply to 2013 and subsequent taxation years.
Testamentary trusts and graduated rate taxation
A common estate planning strategy involves the use of testamentary trusts (spousal trusts, for example) created in a deceased person’s will to hold a beneficiary’s inheritance. These trusts can be more tax efficient that receiving an outright inheritance because the trusts are subject to taxation at graduated rates and allow for the splitting of income between the trust and the beneficiaries. The Department of Finance is concerned with the increasing tax-motivated use of testamentary trusts and the impact on the tax base. The budget announced that the government will consult on possible measures to eliminate the tax benefits arising from the use of these trusts.
Please let us know if you have any questions about how the budget affects you.
Rona Birenbaum is a certified Financial Planner and is licensed to do financial planning. Rona is registered through separate organizations for each purpose and as such, you may be dealing with more than one entity depending on the products purchased. Rona is registered through Caring-for-Clients for financial planning services. This website is not meant as a solicitation for financial advisory services. Financial advisory services are available through the facilities of Queensbury Strategies Inc. Financial Planning is not the business of or under the supervision of Queensbury Strategies Inc. and Queensbury will not be liable or responsible for such activities.