Overview
On April 21, 2015, the federal government delivered its 2015 budget. Given that there will be a federal election in the fall, it's not surprising that there are plenty of benefits which were introduced for taxpayers. Below are highlights (but not all) of the changes announced related tax purposes:
Personal Tax Changes
Tax-Free Savings Accounts (TFSAs)
Beginning in 2015 and continuing in subsequent years, the annual contribution limit for TFSAs has been increased from $5,500 to $10,000. The limit is no longer indexed to inflation.
Registered Retirement Income Funds (RRIFs)
Beginning in 2015 and continuing in subsequent years, the minimum amount required to be withdrawn from an RRIF has been reduced for individuals from ages 71 to 94, dropping from 7.38% at age 71 to 5.28%, and rising each year to a maximum of 20% at age 95. If an individual withdraws more than the new minimum amount in 2015, he or she will be allowed to re-contribute the excess amount back into his or her RRIF by February 29, 2016.
Home Accessibility Tax Credit
Starting in 2016 and continuing in subsequent years, a new tax credit will be available on a non-refundable basis to qualifying individuals, of 15% on up to $10,000 of eligible expenditures each year on an eligible dwelling. Qualifying individuals (i.e. the person for whom the amounts are being spent) must be at least 65 years old by the end of the year or be eligible for the disability tax credit in that year. An eligible individual (i.e. a person claiming the credit) may also claim the amount if they claim the spousal or common law partner amount, eligible dependent amount, caregiver amount or infirm dependent amount for the year.
The eligible dwelling must be the principal residence of the qualifying individual at any time in the year, or if they do not have a principal residence, a dwelling will qualify if it is the principal residence of an eligible individual and the qualifying individual lives there with him or her.
The types of expenditures which are eligible include renovations and improvements of an enduring nature, to allow the qualifying individual to gain access to or to be more mobile in the dwelling, or to reduce the risk of harm to the qualifying individual in the home.
Reporting
Foreign Reporting Requirements
At present, Canadian individuals, corporations and trusts that own foreign assets with a total cost of at least $100,000 must file a Form T1135 as part of their tax return, to report the assets. Canada Revenue Agency has introduced a simplified form, to be used in 2015 and in subsequent years, where the total cost of the property throughout the year is less than $250,000. The existing form will continue to be required for taxpayers with foreign assets with a cost greater than $250,000.
Charitable Changes
Donations Involving Private Corporation Shares or Real Estate
For dispositions occurring after 2016, an exemption from capital gains has been proposed for dispositions of private company shares or real estate where the cash proceeds are donated to a charity within 30 days of the sale. The shares or real estate must be sold to purchaser who is arm's length from both the vendor and the charity. This change will be subject to anti-avoidance provisions, which would deny the exemption if the property is re-acquired by the donor within 5 years of the sale.
Investments by Charities in Limited Partnerships
It has been proposed that registered charities will be allowed to invest in limited partnerships, and such investment will not be considered to be a business carried on by the charity. The partners of a partnership are otherwise considered to be carrying on the business of the partnership, and at present, charitable organizations and public foundations may only engage in a business if the activities qualify as a related business. Private foundations are prohibited from engaging in business activities. The registered charity may not own more than 20% of the limited partnership, and must deal at arm's length with each general partner of such partnership.
Business Tax Changes
Small Business Tax Rate
Canadian-controlled private corporations are currently taxed at a rate of 11% on their first $500,000 of active business income each year. It has been proposed that the rate will be reduced to 9%, as follows:
- reduced to 10.5% from January 1, 2016
- reduced to 10.0% from January 1, 2017
- reduced to 9.5% from January 1, 2018
- reduced to 9.0% from January 1, 2019
For those corporations which do not have a December 31 year end, the reduced rates will be prorated.
Dividend Tax Credit Adjustment
The current top federal marginal rate for non-eligible dividends is 21.2%. Together with the reduction to the small business deduction, it was announced that the dividend gross-up and tax credit for non-eligible dividends will also be adjusted in those years, resulting in the following rates for non-eligible dividends:
- increased to 21.6% in 2016
- increased to 22.2% in 2017
- increased to 22.6% 2018
- increased to 23.0% 2019
Increase in Lifetime Capital Gains Exemption for Qualified Farm or Fishing Property
The exemption available on the disposition of qualified farm or fishing property was increased from $813,600 to the greater of (i) $1 million and (ii) the lifetime capital gains exemption applicable to capital gains on the disposition of qualified small business corporation shares, indexed to inflation.
Tax Avoidance of Corporate Capital Gains
An amendment has been proposed to the existing anti-avoidance rules found in section 55 of the Income Tax Act (Canada). The rules, when applicable, generally act to convert what are otherwise inter-corporate dividends (i.e. tax-free) to capital gains, where the dividend was paid to reduce what would otherwise have been a capital gain. The amendment was introduced to ensure that these rules will apply where one of the purposes of the dividends was to effect:
- a significant reduction in the fair market value of any share, or
- a significant increase in the total cost of properties of the recipient of the dividend.
In an upcoming blog post, we will expand on this change to section 55 in greater detail.