2009 Budget Brief PERSONAL INCOME TAX MEASURES. Basic personal amount

Transcription

1 Finance Minister Jim Flaherty tabled the 2009 Federal Budget on Tuesday January 27, The budget proposals contained somewhat extensive tax proposals to help promote spending in hopes of stimulating the economy. PERSONAL INCOME TAX MEASURES Basic personal amount Budget 2009 proposes to increase each of the basic personal, spousal and common-law partner, and the eligible dependant amounts to $10,320 effective January 1, 2009 (these amounts were $9,600 in 2008 and they were originally scheduled to be increased to $10,100 in 2009). Personal income tax brackets The budget proposes to increase the upper limit of the two lowest personal income tax brackets to $40,726 and $81,452 respectively, effective January 1, The proposed 2009 Federal tax brackets are as follows: Age credit Pre Budget Post-Budget Up to $38,832 Up to $40,726 15% $38,833 77,664 $40,727 to $81,452 22% $77, ,264 $81,453 to $126,264 26% In excess of $126,264 In excess of $126,264 29% The age credit (which is a tax credit for Canadians 65 years of age and older) will be increased by $1,000 to $6,408, effective January 1, EI Support 2009 Budget Brief The Employment Insurance ( EI ) program exists to provide financial support to Canadians who have lost their jobs. The Government will increase all regular benefit entitlements by five extra weeks to a maximum of 50 weeks for the next two years. EI premiums for 2010 will remain at 2009 levels. Enhancement to the EI program under this budget will also include: Provide $500 million over two years to extend EI income benefits for individuals participating in longer-term training. Allow earlier access to EI benefits for workers who have received severance packages, if they use some or all of that severance to purchase skills upgrading or training for themselves. Extend, over the next two years, by 14 weeks, to a maximum of 52 weeks, work-sharing agreements that offer EI income benefits that offer EI income benefits to qualifying workers willing to work a reduced work-week while their employer recovers from a temporary slow-down. RRSP/RRIF Losses After Death The fair market value of investments held in a Registered Retirement Savings Plan ( RRSP ) at the time of an RRSP annuitant s death is generally included in the income of the deceased for the year of death. A subsequent increase in the

2 value of the RRSP investments is generally included in the income of the beneficiaries of the RRSP upon distribution. Similar rules apply in the case of Registered Retirement Income Funds ( RRIF s ). There is, however, no existing income tax provision to recognize a decrease in the value of RRSP or RRIF investments that occurs after the annuitant s death and before they are distributed to beneficiaries. The budget proposes to allow, upon the final distribution of property from a deceased annuitant s RRSP or RRIF, the amount of post-death decreases in value of the RRSP or RRIF to be carried back and deducted against the year-ofdeath RRSP/RRIF income inclusion. The amount that may be carried back will generally be calculated as the difference between the amount in respect of the RRSP or RRIF included in the income of the annuitant as a result of the death of the annuitant and the total of all amounts paid out of the RRSP or RRIF after the death of the annuitant. This measure will apply in respect of deceased annuitants RRSPs or RRIFs where the final distribution from the RRSP or RRIF occurs after Mineral Exploration Tax Credit Flow-through shares allow companies to renounce or flow-through tax expenses associated with their Canadian exploration activities to investors, who can deduct the expenses in calculating their own taxable income. The mineral exploration tax credit is an additional benefit, available to individuals who invest in flow-through shares, equal to 15 per cent of specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors. The credit was initially introduced in 2000 and is currently scheduled to expire at the end of March The budget proposes to extend eligibility for the mineral exploration tax credit for one year, to flow-through share agreements entered into on or before March 31, Apprentices Upon completion of an apprenticeship program leading to the certification in a Red Seal skilled trade the individual will be entitled to receive a taxable grant of $2,000. The budget was silent with respect to the implementation date of this grant. CORPORATE AND BUSINESS INCOME TAX MEASURES Small Business Deduction The budget increases the amount of the small business deduction from $400,000 to $500,000. The small business deduction provides for a lower rate of tax on active business income earned by a Canadian-Controlled Private Corporation. The active business income eligible for the small business deduction is taxed at the low federal corporate tax rate of 11% (instead of the general federal corporate rate of 19%). The limit is being raised to $500,000 effective January 1, 2009 pro-rated for year ends ending prior to December 31, Extension of Accelerated CCA for Manufacturing & Processing Equipment To assist Canada s manufacturing sector the budget proposes to extend the accelerated capital cost allowance (CCA) treatment for investment in manufacturing and processing machinery and equipment by two years. Originally announced in Budget 2007, and previously scheduled to expire at the end of 2009, the 50% straight-line accelerated CCA treatment will now apply to equipment acquired prior to Page: 2

3 Computers & Software: Accelerated CCA The budget proposes a temporary 100% CCA rate for eligible new computers and software acquired after January 27, 2009 and before February This 100% rate is not subject to the half-year rule; therefore a business will be able to fully deduct the cost of an eligible computer and software in the year it is purchased. Mandatory Electronic Filing Corporations with gross revenue in excess of $1 million for a taxation year will be required to file their returns in an electronic format for taxation years ending after The number of any type of tax information return that must be electronically filed is reduced to 50 (from 500) for returns required to be filed after Affected returns include T4, T5 type information returns and slips for employment or investment income. HOME OWNERS INCENTIVES Home Renovation Tax Credit To stimulate economic growth and encourage Canadians to invest in improvements to their homes, the budget proposes to introduce a temporary Home Renovation Tax Credit ( HRTC ). Individuals will be able to claim a 15-per-cent non-refundable tax credit for eligible expenditures made in respect of eligible dwellings. The credit will apply to expenditures in excess of $1,000, but not more than $10,000, resulting in a maximum credit of $1,350 ($9,000 x 15%). The credit will apply only to the 2009 taxation year. Expenditures for work performed, or goods acquired, after January 27, 2009 and before February 1, 2010, will be eligible for the credit. The credit will not be available in respect of expenditures for work performed or goods acquired in that period if the expenditure is made pursuant to an agreement entered into before January 28, Individuals may claim this credit (including in respect of expenditures made in January 2010) in their 2009 income tax return. Eligibility for the HRTC will be family-based. For this purpose, a family will generally be considered to consist of an individual, the individual s spouse or common-law partner, and their children who were, throughout 2009, under the age of 18 years. Family members will be subject to a single limit based on their pooled expenditures. While it is anticipated that in most cases one family member will claim the whole of the credit, any unused portion may be claimed by one or more of the other family members as a credit against that person s tax otherwise payable. Two or more families that share ownership of an eligible dwelling will each be eligible for their own credit. Each family s credit will be determined by their respective eligible expenditures in excess of $1,000, but not more than $10,000. Individuals will be able to claim the HRTC on eligible expenditures made in respect of dwellings that are eligible to be their principal residence or that of one or more of their other family members. It could in many circumstances include a cabin or cottage. In general, a housing unit is considered to be eligible to be an individual s principal residence where it is owned by the individual and ordinarily inhabited by the individual, the individual s spouse or common-law partner or their children. In the case of condominiums and co-operative housing corporations, the credit will be available for eligible expenditures incurred to renovate the unit that is eligible to be the individual s principal residence as well as the individual s share of the cost of eligible expenditures incurred in respect of common areas. Page: 3

4 Individuals who earn business or rental income from part of their principal residence will be allowed to claim the credit for the full amount of expenditures made in respect of the personal-use areas of the residence. For expenditures made in respect of common areas or that benefit the housing unit as a whole (such as re-shingling a roof), the administrative practices ordinarily followed by the Canada Revenue Agency ( CRA ) to determine how business or rental income and expenditures are allocated as between personal use and income-earning use will apply in establishing the amount qualifying for the credit. Expenditures will qualify for the HRTC if they are incurred in relation to a renovation or alteration of an eligible dwelling (including land that forms part of the eligible dwelling) provided that the renovation or alteration is of an enduring nature and is integral to the eligible dwelling. Such expenditures would include the cost of labour and professional services, building materials, fixtures, equipment rentals, and permits. The following expenditures will not be eligible for the credit: The cost of routine repairs and maintenance normally performed on an annual or more frequent basis Expenditures for appliances and audio-visual electronics. Financing costs associated with a renovation (e.g. mortgage interest costs). Alterations or other items, such as furniture or draperies, and other indirect expenditures for items that retain a value independent of the renovation, such as the purchase of construction equipment (e.g. tools) will not be considered integral to the dwelling and therefore will not qualify for the credit. The HRTC will not be reduced by any other tax credits or grants to which a taxpayer is entitled under other government programs. For instance, in the case of an individual who makes an eligible expenditure that also qualifies for the Medical Expense Tax Credit (METC), the individual will be permitted to claim both the HRTC and the METC in respect of that expenditure. Expenditures will not be eligible if the related goods or services are provided by a person not dealing at arm s length with the individual, unless that person is registered for Goods and Services Tax/Harmonized Sales Tax purposes under the Excise Tax Act. Any eligible expenditure claimed for the HRTC must be supported by receipts. Home Buyers Plan The Home Buyers Plan ( HBP ) allows first-time home buyers to withdraw amounts from a Registered Retirement Savings Plan ( RRSP ) to purchase or build a home without having to pay tax on the withdrawal. The budget proposes to increase the HBP withdrawal limit to $25,000 from $20,000. For HBP purposes, an individual is generally considered to be a first-time home buyer if neither the individual nor the individual s spouse or common-law partner owned and lived in another home in the calendar year in which the HBP withdrawal is made or in any of the four preceding calendar years. Special rules apply to facilitate the acquisition of a home that is more accessible or better suited for the personal needs and care of an individual who is eligible for the disability tax credit, even if the first-time home-buyer requirement is not met. These rules will also be modified to provide the same $25,000 withdrawal limit. Withdrawn funds must generally be used to acquire a home before October of the year following the year of withdrawal. Amounts withdrawn under the HBP are repayable in instalments over a period not exceeding 15 years. To the extent that a scheduled repayment for a year is not made, it is added to the participant s income for the year. A special rule denies an RRSP deduction for contributions withdrawn under the HBP within 90 days of being contributed. Page: 4

5 This increase in the HBP withdrawal limit will apply to the 2009 and subsequent calendar years in respect of withdrawals made after January 27, First-Time Home Buyers Tax Credit The budget proposes to introduce a new non-refundable tax credit based on a maximum amount of $5,000 expended by first-time home buyers who acquire a qualifying home after January 27, The expenditures that qualify for the credit include legal fees, disbursements and land transfer taxes related to the purchase. The credit for a taxation year will be calculated by reference to the lowest personal income tax rate for the year and is claimable for the taxation year in which the home is acquired. An individual will be considered a first-time home buyer if neither the individual nor the individual s spouse or common-law partner owned and lived in another home in the calendar year of the home purchase or in any of the four preceding calendar years. A qualifying home is one that is currently eligible for the HBP that the individual or individual s spouse or common-law partner intends to occupy as the principal place of residence not later than one year after its acquisition. The budget also proposes that the credit be available for certain acquisitions of a home by or for the benefit of an individual who is eligible for the disability tax credit ( DTC ). The credit will be available in respect of a home acquired after January 27, 2009 by an individual who is eligible for the DTC, or by an individual for the benefit of a related individual who is DTC-eligible, if the home is acquired to enable the DTC-eligible individual to live in a more accessible dwelling or in an environment better suited to the personal needs and care of that person. For the purpose of this credit, a DTC eligible individual is an individual in respect of whom an amount is deductible under the DTC for the taxation year in which the agreement to acquire the home is entered into, or would be deductible if costs for an attendant or care in a nursing home were not claimed for METC purposes by or on behalf of that person. Where the home is acquired by or for the benefit of a DTC-eligible individual, the home must be intended to be the principal place of residence of that individual no later than one year after its acquisition. Any unused portion of an individual s First-Time Home Buyers Tax Credit may be claimed by the individual s spouse or common-law partner. Where more than one individual is entitled to the First-Time Home Buyers Tax Credit (for example, where two individuals jointly buy a home), the total amount of the credits claimable for the year by those individuals shall not exceed the maximum amount of the credit that would be claimable for the year by any one of those individuals. DISCLAIMER: The KMSS Budget Brief is for information only and is not intended to be either a complete description of the Budget provisions or the opinion of our firm. You should consult your KMSS advisor to obtain further information and discuss how these budget proposals affect your specific situation. Page: 5