The Minister of Finance, Bill Morneau, presented the 2019 federal budget on Tuesday, March 19. This summary highlights certain tax measures announced in the budget.
Personal tax measures relating to registered plans
Changes to the Home Buyers’ Plan (“HBP”)
The HBP is an existing program that allows a Registered Retirement Savings Plan (“RRSP”) annuitant who is also a first-time home buyer to withdraw a maximum of $25,000 from their RRSP on a tax-free basis when purchasing or building a home. The funds must be repaid to the RRSP within a prescribed time frame.
The budget proposes to increase the withdrawal limit by $10,000 to $35,000 for withdrawals made after March 19, 2019. The budget also proposes to extend the HBP to individuals that have experienced a breakdown in their marriage or common-law relationship, even if they do not meet the first-time home buyer requirement, for withdrawals made after 2019.
The budget also proposes to further assist first-time home buyers through the option of a shared equity mortgage. The first-time home buyer incentive is proposed to be available for up to 10% of the purchase price for a new home and 5% of the purchase price for an existing home for buyers with the minimum down payment for an insured mortgage.
Registered Disability Savings Plan (“RDSP”) improvements
The RDSP is a long-term registered savings plan to assist people with disabilities save for their future financial security. To be eligible as a beneficiary of an RDSP when the plan is opened, an individual must qualify for the disability tax credit (“DTC”).
Historically, if a beneficiary was no longer considered to have a severe or prolonged disability and became ineligible for the DTC, the RDSP had to be closed by December 31 following the year that the beneficiary became ineligible, often resulting in a repayment of grants and bonds to the government. An election to postpone the closure of the plan was only available if a medical practitioner certified that it was likely the beneficiary would be eligible for the DTC in the future.
The budget proposes to remove this RDSP closure requirement.
Permitting additional annuity investments for registered plans
Individuals have been allowed to purchase annuities with the proceeds of certain registered plans. An annuity provides for a stream of periodic payments to an individual, generally for a fixed term, for the life of the individual, or for the joint lives of the individual and his or her spouse or common-law partner. When annuities are purchased with funds from a tax-sheltered retirement savings plan, the payments are generally required to begin by age 72.
The budget proposes to permit advanced life deferred annuities (“ALDA”) as a qualifying annuity purchase, or a qualified investment for an RRSP or Registered Retirement Income Fund (“RRIF”) beginning in 2020. An ALDA is a life annuity that permits payments to be deferred until the end of the year in which the individual turns 85. An individual will be subject to a lifetime limit on the amount that can be purchased or held in an ALDA. The investments you choose to hold in your RRSP or RRIF should reflect your specific situation, risk tolerance and time horizon.
Transfers from a defined benefit pension plan to an Individual Pension Plan (“IPP”)
An IPP is an employer-sponsored defined benefit pension plan, typically for one or two members. An IPP may generally be considered by business owners or incorporated professionals to provide for tax-deferred retirement savings that may exceed that of an RRSP.
In certain circumstances, individuals may have instead used an IPP to transfer the full commuted value of their benefits from a defined benefit pension plan of which they have ceased to be a member. The budget proposes to prevent this specific type of planning going forward by prohibiting such transfers.
Should you have questions regarding any of the proposed changes to registered plans discussed above, please contact your ATB Wealth advisor.
Other personal tax measures
Stock option deduction cap
The stock option deduction effectively results in stock option compensation being taxed at 50% of the tax rate that applies to other employment income, similar to the rate that applies to capital gains. There has been some speculation that the stock option deduction might be eliminated.Rather than eliminating the stock option deduction, the budget proposes to implement an annual cap of $200,000 on employee stock option grants. The cap will be based on the fair market value of the underlying shares and will only apply to employees of large, long-established, mature firms. Further information regarding this measure is to be provided this summer.
Canada training credit
Leading up to the budget, indications were made that financial incentives would be provided to encourage lifelong learning and skills training. The Canada training credit will be available beginning in 2020.
Each year beginning in 2019, workers between the ages of 25 and 64 with income of at least $10,000 and not more than approximately $150,000 will accumulate a credit balance of $250 to be used towards future training, to a maximum of $5,000. A tax credit can be claimed for the lesser of the accumulated credit balance and ½ the tuition and fees paid.
In conjunction with the Canada training credit, the government will also offer the Employment Insurance (EI) training support benefit to provide income support for up to 4 weeks.
Charitable donation tax credits
For Alberta resident individuals, the combined federal and provincial charitable donation tax credits represent 25% on the first $200 donation in the year, 50% on donations in excess of $200 (where the taxpayer is not in the top federal marginal tax bracket) and 54% on donations in excess of $200 (where the taxpayer has sufficient income taxed at the top federal marginal tax bracket).
The charitable donation tax credit applies for donations made directly to a registered charity or other qualified donee. The budget proposes to allow qualified Canadian journalism organizations to register as qualified donees beginning in 2020.
A donation of certain types of capital property (including shares listed on a designated stock exchange, units of a mutual fund trust, ecologically sensitive land and cultural property) may result in an additional benefit of a zero inclusion rate on any capital gain realized (as opposed to an inclusion rate of 50% if the property was sold). The budget proposes to remove the requirement that cultural property be of national importance in order to qualify for this treatment.
Digital news credit
The budget proposes a 15% tax credit for individuals that pay for a digital news subscription from a qualified Canadian journalism organization. The tax credit is temporary in nature and will be available from 2020 to 2024.The above summary only highlights certain budget items. Other items contained in the budget will be relevant for some taxpayers. The budget also contained a number of corporate tax measures including:
- An immediate write-off for zero-emission vehicles purchases beginning March 19, 2019. This measure is temporary and will be phased out between 2024 and 2027.
- A retroactive change that will permit Canadian controlled private corporations (“CCPCs”) in the business of farming to claim the small business deduction on income from sales to an arm’s length purchaser.
- Potential increased access to enhanced scientific research and environmental development (“SRED”) tax credits for CCPCs.
For further details regarding all budget initiatives, please refer to the 2019 budget documents on the Department of Finance website.
This document has been prepared by ATB Wealth. ATB Investment Management Inc., ATB Securities Inc. (Member Investment Industry Regulatory Organization of Canada and Canadian Investor Protection Fund) and ATB Insurance Advisors Inc. are wholly owned subsidiaries of ATB Financial and operate under the trade name ATB Wealth. The information provided in this article is a simplified general summary and is not intended to replace or serve as a substitute for professional advice. Professional tax advice should always be obtained when dealing with taxation issues as each individual’s situation is different. This information has been obtained from sources believed to be reliable but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. This information is subject to change and ATB Securities Inc. (Member Investment Industry Regulatory Organization of Canada and Canadian Investor Protection Fund), ATB Investment Management Inc. and ATB Insurance Advisors Inc. reserves the right to change the information without prior notice, and does not undertake to provide updated information should a change occur. ATB Financial, ATB Investment Management Inc., ATB Securities Inc. and ATB Insurance Advisors Inc. do not accept any liability whatsoever for any losses arising from the use of this document or its contents.