标题: Re: March 22, 2011 Federal Budget

作者: JP Feng

日期: 2011-03-23

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    March 22, 2011 Federal Budget -- JP Feng 2011-03-23

Hi, There


As you knew, Federal government posted 2011 Federal budget yesterday. In this new budget, some changes may affect your future financial situation. Here I highlight some new and changes that will affect your personal financial planning.


JP Feng

 

 

 

March 22, 2011 Federal Budget

 

What You Should Know

On March 22, 2011, the Federal Government tabled the 2011 Budget. The Budget provides a number of tax measures that may impact the tax and estate planning strategies of many Canadian investors and their advisors. Please note that these measures are not yet law and may undergo revisions before receiving Royal Assent.

 

Personal Tax Changes

There are no changes to the Federal Income Tax Rates; however there are some tax savings/credits proposed in this Budget as follows:

 

Extended Eligibility for Mineral Exploration Tax Credit

 

Donation of Flow-Through Shares To Charity

 

Family Caregiver Tax Credit

Budget 2011 proposes a new $2,000 Family Caregiver Tax Credit. This is a 15% non-refundable tax credit available to caregivers of dependants who have a mental or physical infirmity. Qualified dependants include spouses, common-law partners and minor children. Caregivers will benefit from the Family Caregiver Tax Credit by claiming an enhanced amount for an infirm dependant under one of the existing dependency-related credits, including the Spousal or Common-law Partner Credit , Child Tax Credit, Eligible Dependant, Caregiver and Infirm Dependant Credits. Starting in 2012, this tax credit can amount to approximately $400 in total tax savings.


 

Medical Expense Tax Credit for Other Dependants

A Medical Expense Tax Credit (METC) is available for eligible medical expenses incurred for a taxpayer, spouse or common-law partner, or child under the age of 18. A METC can also be claimed in respect of eligible expenses incurred for a dependant relative, if the caregiver pays for the medical or disability-related expenses and the eligible expenses exceed the lesser of 3% of the taxpayers net income for the year and $2,052 (in 2011). This includes expenses made on behalf of adult children, parents, grandparents, brother, sister and other family members who are dependent on the taxpayer for support.

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Registered Disability Savings Plans (RDSPs) - Increased Flexibility for Shortened Life Expectancy

 

Child Tax Credit Eligibility

Under current rules, only one individual can claim the Child Tax Credit in a domestic establishment. This creates an inequity in situations where more than one family share a home and each have their own children. For example, if two sisters share a home and each sister has a child, only one of the sisters would be entitled to claim the Child Tax Credit. As a result of this inequity, the Budget proposes to repeal the rule that limits the number of Child Tax Credit claimants to one per domestic establishment. This measure applies to 2011 and beyond.

 

Registered Education Savings Plan (RESPs) – Asset Sharing Among Siblings

RESPs are tax-assisted savings vehicles designed to help families accumulate savings for post-secondary education. The Federal Government provides assistance through Canada Education Savings Grants (“CESGS”) and Canada Education Savings Bonds (“CESBS”) under certain conditions. There are also provincial grants and bonds to further assist families to save. There are “family” plans and “individual” plans. For example, individuals such as aunts and uncles who want to save for a number of children through RESPs, but are not considered by the Income Tax Act to be connected to the children by blood or adoption may only do so through individual plans. This is not necessarily the case for a family plan, where one plan may have multiple beneficiaries. In particular, tax penalties and CESG repayments may apply on the transfer of assets between individual plans, unless the beneficiaries are the same, or where the beneficiaries are siblings, generally before the beneficiary under the receiving plan attains 21 years of age In contrast, in a family plan, a subscriber may allocate plan assets among siblings regardless of their age.


To provide subscribers of separate individual plans with the same flexibility to allocate assets among siblings as exists for subscribers of family plans; Budget 2011 proposes to allow transfers between individual RESPs for siblings, without tax penalties and without triggering the repayment of CESGs. This is provided that the beneficiary of a plan receiving a transfer of assets was younger than 21 years of age when the plan was opened. Budget 2011 also proposes related amendments to the Canada Education Savings Regulations to give effect to this measure in relation to CESGs. These measures will apply to asset transfers that occur after 2010.

 

Children’s Art Tax Credit

The Budget proposes a new, non-refundable Childrens Arts Tax Credit. This will allow parents to claim a 15 percent tax credit based on an amount of up to $500 in eligible expenses per child paid in a year. The credit will be available for enrolling a child under the age of 16 at the beginning of the year, in an eligible program of artistic, cultural, recreational or developmental activities. Generally speaking, the parameters of the new tax credit are loosely based on those of the Childrens Fitness Tax Credit. Eligible expenses include fees paid for the registration or membership of a child in an eligible program. Ineligible expenses include travel, meals, accommodations or other expenses that would generally be eligible for the Childrens Fitness Tax Credit or Child Care Deduction. An eligible program will either be:

i) A weekly program lasting a minimum of eight consecutive weeks; or

ii) In the case of childrens camps, a program lasting at least 5 consecutive days

 

The full cost of the childs membership will generally be eligible for the credit if more than 50 per cent of the activities offered to children are either considered eligible activities or more than 50 percent of the time is devoted to eligible activities. Either parent may claim the credit, or it may be shared between parents. This measure applies to eligible expenses paid in 2011 and beyond.

 

Tuition Tax Credit – Examination Fees

The Budget proposes to amend the Tuition Tax Credit to recognize fees paid to an educational institution, professional association, provincial ministry or other similar institution to take an examination. The examination must be required to obtain a professional status, license or certification to practice a profession or trade in Canada. Eligible fees include the cost of examination and certain study materials, but do not include costs for travel, parking or equipment. This measure applies to expenses incurred for exams taken in 2011 and thereafter. This amendment is welcome news for those looking to advance their education and skills towards a particular trade or professional designation.

 

Education Tax Measures – Study Abroad

Currently, a Canadian student can claim the tuition tax credit, education and textbook credits in respect of full-time attendance at a university outside of Canada as long as the tuition fees are paid for a course lasting at least 13 consecutive weeks. The 13 consecutive week requirement also exists for students looking to receive Education Assistance Payments (EAPs) from an RESP to help fund their enrollment in an educational institution outside of Canada. Unfortunately, many students are denied the tax credits and access to EAPs because many foreign universities are based on semesters shorter than 13 weeks in duration.

The Budget proposes to reduce the 13 consecutive week requirement to claim the Tuition, Education and Textbook Tax Credits to 3 consecutive weeks. In addition, the 13 consecutive week requirement for EAP purposes will also be reduced to 3 consecutive weeks when the student is enrolled at a university in a full-time course. This measure will apply to tuition fees paid for courses taken in 2011 and subsequent taxation years and to EAPs made after 2010. This means that more students will be entitled to claim the associated tax credits and will now have greater access to their RESPs to fund their education.

 

“Kiddie Tax” (Tax on Split Income) – To Apply to Certain Capital Gains

The Income Tax Act (ITA) contains a number of rules intended to reduce the ability of a higher-income taxpayer to split taxable income inappropriately with lower-income individuals. One of these rules, “kiddie-tax” or “tax on split income”, limits income splitting between a higher-income individual and a lower-income minor child. Where income received by a minor is deemed “split income”, the highest marginal tax rate (currently 29%) applies. Split income generally consists of:

• taxable dividends received directly or indirectly, in respect of private corporation shares and


• income from a partnership or trust if the income is derived from providing property or services to, or in support of, a business carried on by a person related to the child

The tax on split income did not initially apply to capital gains, however there are no techniques used that involve capital gains being realized for the benefit of a minor on a disposition of shares of a corporation to a person who does deal at arms-length with the minor. To maintain the integrity of the tax on split income, Budget 2011 proposes to extend the tax on split income to capital gains realized in these circumstances, provided taxable dividends on the shares would have been subject to the tax on split income. Capital gains that are subject to this measure will be treated as dividends and, therefore, will not benefit from capital gains inclusion rates nor qualify for the lifetime capital gains exemption.

This measure applies to capital gains realized on or after March 22, 2011, and the government will continue to monitor the tax on split income regime and take further action if new income-splitting techniques develop.

 

RRSPs – Anti Avoidance Rules

Budget 2011 proposes to enhance the existing RRSP anti-avoidance rules by introducing rules similar to the following anti-avoidance rules that currently apply to Tax-Free Savings Accounts (TFSAs). These include;

1) The Advantage Rules – A number of situations arise where the tax attributes of an RRSP are exploited. In these cases, the RRSP advantage or benefit will trigger tax, equal to the fair market value of such benefit.

 

2) The Prohibited Investment Rules – Prohibited investments will be subject to a special tax equal to 50% of the fair market value of the investment and will apply to the RRSP annuitant. The tax will generally be refunded, if the investment is disposed of from the RRSP by the end of the year following the year in which the tax applied unless the annuitant knew that the investment was a prohibited investment when it was acquired.

 

3) Non-Qualified Investment Rules – Currently, when an RRSP holds a „non-qualified investment, any income earned is taxable to the RRSP. In addition, the fair market value of the investment is included in the RRSP annuitants income, with an offsetting deduction available when the property is disposed of. In addition, the RRSP is liable for a penalty tax of 1% per month of the fair market value of the investment for each month held in the RRSP. Budget 2011 proposes to replace the income inclusion, deduction as well as the 1% per month tax. Under this proposal, an RRSP annuitant will be subject to a special tax of 50 per cent of the fair market value of a non-qualified investment. This tax is generally refundable when the investment is disposed of. Investment income earned on a non-qualified investment in an RRSP will remain taxable to the RRSP.

 

Volunteer Firefighters Tax Credit

Budget 2011 proposes a new Volunteer Firefighters Tax Credit. This is an annual $3,000 non-refundable tax credit on a volunteer firefighters personal tax return. This credit applies to volunteer firefighters who volunteer:

at least 200 hours of firefighting services a year

for one or more fire departments

for duties that consist primarily of responding to and being on call for firefighting and related emergency calls, attending meetings held by the fire department and participating in required training related to the prevention or suppression of fires.

 

An individual who claims this credit will be ineligible for the existing tax exemption of up to $1,000 for honoraria paid by a government, municipality or public authority in respect of firefighting duties. The measure applies for 2011 and beyond

This new tax credit has tax savings of approximately $450 each year, and therefore as a general rule, if your client is receiving an honoraria from the government and is not in the top marginal tax bracket, the new Volunteer Firefighters Tax Credit will provide more tax savings than the honoraria exemption
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