Budget 2014 - Overview

As you may know, Finance Minister Jim Flaherty delivered his federal budget on Tuesday this week in Ottawa.  In case you haven’t had a chance to review the media coverage, I thought you would appreciate a quick overview.

Unlike prior years, 2014’s budget doesn’t have any major changes that impact the majority of Canadians.  Ottawa did increase the adoption expense tax credit from $12000 to $15000.  And there’s a new tax credit for search and rescue volunteers similar to the one for volunteer firefighters.  Those with diabetes will also be able to claim their diabetes service animals.

But there are no major alterations of tax rates, or alterations to contribution rates for major programs like the RRSP, RESP, RDSP or TFSA.

Still, for people with higher incomes, business owners and new Canadians, there are some targeted tax changes that they should be aware.  These include:

Kiddie Tax Changes – These provisions have long targeted business owners who split income by paying dividends to minor children by taxing them at the highest marginal rates, rather than the lower ones available to kids.

This year’s budget widens the Kiddie tax lens to include business and rental income earned through a trust or a partnership structure, so you’ll no longer be able to make a minor the beneficiary of a trust that earns income generated by the work of adult partners.  The change is effective immediately.

Graduated Tax Rates in Trusts – A long anticipated change eliminates graduated tax rates for testamentary trusts, which essentially allowed income splitting after death.

This is a major change that impacts estate planning for higher net worth Canadians, and the change takes effect in 2015.

If you are thinking of doing some estate planning, it’s important to discuss options beyond these no-longer-available graduated tax rates, since there are numerous other ways to apply a testamentary trust.

Elimination of the Immigration Trust – Ottawa had long granted newly arrived Canadians to place money in offshore trusts for a period of five years at no tax.  In an unexpected move, the Finance minister announced that loophole has now been closed, effective immediately.

Donations on Death Rule Changes – Current rules make a donation through a will claimable in the year of death and in the prior year.  That changes in 2016 when the estate will be able to claim it for the year the gift is made, and any prior year.

Heirs also will retain the option of using the current system.  For some, especially estates that remain open and continue to earn income, this option may add some flexibility at tax time.

Pension Transfer Limits – Starting 2011, Ottawa introduced relief for people who had to commute underfunded pensions to RRSPs, RRIFs or other savings vehicles.  The 2014 budget extends that tax relief.

I hope you find these highlights useful.  If you’d like to discuss these changes and how they may affect your financial plan, please don’t hesitate to give me a call.

Have a great weekend,

Go Canada!

Tracey

 

 

 

 

 

 

 

 

 

 

Source:  Advisor.ca