Federal budget 2015

The federal government announced its annual budget on April 21, 2015. This article doesn’t contain a complete list of proposals, but outlines the ones that may be of the most interest in your financial Planning. Please note the announced budget contains proposals that may undergo revisions before becoming law.

More flexibility

  • TFSA – contribution limit increased to $10,000

  • RRIF – helping seniors conserve savings

  • Charitable donations – exemption from capital gains tax if donating proceeds from the sale of private corporation shares or real estate

  • Lifetime capital gains exemption – increase for farming and fishing property

  • Small business – future two percentage-point decrease in corporate tax rate and associated increase to taxation of non-eligible dividends

  • Family – The Government is proposing to enhance the UCCB

Increase in annual client contribution limit to TFSA

Clients will be able to invest up to $10,000 annually into their tax-free savings account (TFSA). It should be recalled that unused TFSA contribution room is carried forward and withdrawals from a TFSA can be re-contributed to a TFSA in future years. Currently, Canadians are allowed an annual contribution limit of $5,500, indexed to inflation in increments of $500. The budget proposes to increase the annual TFSA contribution limit by $4,500 effective in 2015. Going forward, the maximum contribution limit will not be indexed as they have been in the past.

RRIF changes help Canadians over 71 make savings last longer Individuals 71 to 94 owning a registered retirement income fund (RRIF) will no longer be required to withdraw as much money from their retirement savings under the proposed new rules. This means clients may now be able to make their savings last longer. For example, under the current rules, when retirees reach age 71 they must withdraw a minimum of 7.38 per cent from their RRIF. The 2015 budget proposes to lower this to 5.28 per cent. Retirees withdrawing more than the new minimum from their RRIF in 2015 will be allowed to re-contribute up to the difference between the old and the new minimum by the end of February 2016. There’s no change to the RRIF minimum withdrawal rates that apply at age 70 and younger, and at age 95 and over.

Exemption from capital gains tax if donating proceeds from sale of private corporation shares or real estate Individuals looking to sell private corporation shares or real estate may be able to take advantage of a capital gains tax exemption in certain circumstances. Beginning in 2017, if the cash proceeds from the sale of such property to an arm’s-length purchaser are donated to a qualified charity or foundation within 30 days, then all or part of the capital gain on the disposition may not be subject to tax. If less than the entire sale proceeds are donated, the exempt portion of the capital gain will be prorated using the following formula: Cash proceeds donated / Total cash proceeds on disposition X Total capital gain = Exempt portion of capital gain.

*The exemption will be reversed if certain anti-avoidance rules apply within five years after the sale.

Lifetime capital gains exemption – qualified farm and fishing property

Individuals holding farm or fishing properties may have a higher exemption amount when selling. The current rules provide for a lifetime capital gains exemption (LTCGE) limit of $813,600 in 2015. This limit applies to qualified small business corporation shares (QSBC), qualified farm property and qualified fishing property. The budget proposes that the LTCGE limit on the disposition of qualified farm or fishing property after April 20, 2015 will be the greater of: (i) $1 million, and (ii) the indexed LTCGE limit applicable to QSBC shares. As a result, clients selling the qualified farm property or qualified fishing property will be able to shield additional capital gains from taxation until the current limit of $813,600 (indexed for inflation) increases to $1 million.

Changes to the small business corporate tax rate and taxation of non-eligible dividends

Small business owners will see a reduction in their tax rate over the next four years. Currently, small businesses are taxed federally at 11 per cent on the first $500,000 per year of qualifying active business income of a Canadian-controlled private corporation (CCPC). The 2015 budget proposes to lower this rate incrementally over the next three years starting January 2016 to nine per cent by 2019. This two percentage-point decrease in the small business tax rate will be phased-in and prorated for non-calendar taxation years. The budget also proposes appropriate adjustments to both the gross-up factor and dividend tax credit (DTC) rate applicable to non-eligible dividends. This will result in an increased tax rate to non-eligible dividends over the same time period.


An Enhanced Universal Child Care Benefit

The Government is proposing to enhance the UCCB by increasing the benefit to $160 per month from $100 per month. Parents would receive up to $1,920 per year for each child under the age of 6. The Government is also proposing a new benefit of $60 per month, or up to $720 per year, for children aged 6 through 17. The enhanced UCCB would replace the existing Child Tax Credit for the 2015 and subsequent taxation years. By replacing the Child Tax Credit with the enhanced UCCB, all families with incomes too low to be taxable, and who cannot take advantage of the Child Tax Credit, would benefit.

Previously announced measures

Family tax cut (FTC), announced in October 2014, was confirmed in the budget. FTC allows one spouse to notionally transfer up to $50,000 of taxable income to a spouse in a lower income tax bracket.

Other budget considerations

No mention of further changes to the taxation of graduated rate estates or certain trusts or charitable donations on death in the 2015 budget. No changes to personal income tax rates were proposed.

For full details about the 2015 budget, visit budget.gc.ca.