Budget 2011

Below is the review of some of the important personal and business tax changes with a direct bearing on the finances of Canadians:

Children’s Arts Tax Credit
Parents can claim a 15% non-refundable credit of up to $500 on artistic, cultural, recreational, and developmental activities in which children under the age of 16 are enrolled. Children eligible for the Disability Tax Credit receive more generous treatment: the age limit is 18 years and an extra $500 credit can be claimed.
Activities must be supervised, contribute to development of the child, not part of a regular school curriculum and ongoing (for example, five consecutive days at a camp). Eligible activities include art, chess, crafts, drama, girl guides, languages, music, painting, public speaking, scouts, and tutoring.
The Children’s Arts Tax Credit amounts to an annual tax reduction of up to $75 per child. Along with the existing Children’s Fitness Tax Credit, a family of four may claim a credit of up to $2,000 per year, or a tax reduction of up to $300, for their two children.

Family Caregiver Tax Credit
Caregivers of infirm dependants (including spouses, common-law partners and minor children) will be able to claim a 15% non-refundable tax on $2,000 (indexed for inflation) if receiving a dependency-related credit such as the Child Tax Credit, Infirm Dependant Credit, or the Caregiver Credit.

EcoENERGY Retrofit program
The federal government will extend the ecoENERGY Retrofit-Homes program into fiscal 2011-12. It provides up to $5,000 toward the cost of improving energy efficiency in the home.

Financial literacy and protection
The federal government’s initiative on financial literacy is being advanced with the appointment of a Financial Literacy Leader. As well, some questionable practices of financial-service providers are being banned. One such case is pre-paid credit cards, which charge high, poorly explained fees. Another is unsolicited credit-card cheques. Other measures include:
• remove rule limiting Child Tax Credit (CTC) to one claimant per household (to allow two or more families sharing a house to claim the CTC);
• repeal $10,000 cap on medical expense tax credit claims made on medical costs incurred for an eligible dependent;
• easier access to funds in Registered Disability Savings Plans for beneficiaries with shortened life spans;
• improved Employment Insurance benefits to parents of gravely ill, murdered, or missing children; and
• enhanced ability to make transfers between individual RESPs, and better access to RESP funds for post-secondary students studying outside Canada.

Impact on investors (and retirees)
Proposals affecting investors and retirees were carried over. The focus was on enhancing the retirement system and closing loopholes exploited by aggressive tax-planning activities.

Improvements to the retirement system
For seniors who subsist mostly on Old Age Security (OAS) benefits and the Guaranteed Income Supplement (GIS), annual payments under the GIS are to be topped up as much as $600 for eligible singles and as much as $840 for eligible couples. About 650,000 seniors will receive more than $300 million a year under this measure.
The federal and provincial governments are in talks to introduce the Pooled Registered Pension Plan (PRPP), which is targeted at self-employed individuals and employees without pension plans at small- to medium-sized businesses. PRPPs are like defined contribution pension plans, or group RRSPs.

Clamp-down on income splitting via capital gains
The budget proposes to curtail income-splitting based on capital gains realized by a minor on a sale of shares to a non-arm’s length person — if taxable dividends on the shares would have been subject to the tax on split income. Capital gains so realized will be treated as dividends for tax purposes.

Anti-avoidance rules for RRSPs
More forceful actions, including legislative amendments, will be taken to deal with tax planning schemes that claim to enable RRSP holders to make tax-free withdrawals.

Restrictions on Individual Pension Plans (IPPs)
The June 6 budget reiterates a proposal to require a member of an IPP, once they turn 72, to make minimum annual withdraws similar to what’s required for Registered Retirement Income Funds (RRIFs). And contributions for past years’ service will need to be first funded out of a member’s existing RRSP (or require reducing contribution room).

Limits on tax exemption on donations of flow-through shares
The budget proposes to limit the exemption from capital-gains tax on donations of publicly traded flow-through shares. It will be restricted to capital gain resulting from increase in value from the original cost, excluding the gain resulting from the flow-through credits.

Mineral Exploration Tax Credit
The Mineral Exploration Tax Credit, set at 15% of specified mineral exploration expenses renounced on a flow-through basis is extended by one year.

Earlier there had been speculation one or more of the following Conservatives’ election promises would be included:
• Increase the annual contribution limit for the TFSA to $10,000;
• Increase the limit for Children’s Fitness Credit to $1,000 (and make it refundable);
• Introduce Adult Fitness Tax Credit of up to $500;
• Permit income splitting of up to $50,000 for couples with children under 18.

None of them were there…let us hope some of these commitments will be introduced in future budgets.