Both the Ontario and federal governments’ recent budgets had the same focus: attack the huge—and growing—deficits that have been a problem since the 2008 economic meltdown. Most of the income tax terms were very technical, but today we’ll look at those that could affect you.
Important off the bat: both budgets propose no changes to personal income tax rates.
Let’s start with Registered Disability Savings Plans. The federal budget is shifting the rules to let certain family members be temporary plan holders. This helps adults who may not be able to enter into a contract. The budget also suggests a proportional repayment rule for Canada Disability Savings Grants and Canada Disability Savings Bonds, in situations where repayment arises because of RDSP withdrawals.
The budget will also allow you to roll over investment income earned in a RESP to a RDSP. This gives you a tax-free rollover of RESP investment income to a RDSP while the initial RESP contributions can be returned to the RESP subscriber tax-free.
There are also new rules about terminating an RDSP when the beneficiary becomes ineligible for the tax credit. Now, an election can extend the length of time the RDSP can stay open.
The provincial budget confirmed some things we already knew about. The Ontario Clean Energy Benefit (effective January 1, 2011) provides a 10% benefit on hydro bills to help with rising energy costs. The Healthy Homes Renovation Tax Credit will offer a refundable tax credit of up to $1500 each year for permanent home modifications that improve accessibility or functionality for seniors. This applies to payments made after September 2011 and will be effective for the 2012 and subsequent tax years.
The budget also proposes an Ontario Child benefit payment increase from $1100-$1210 per child, but not until July 2013.
A small shake-up for the Ontario drug benefit program, which pays for prescription drugs for seniors. Right now the annual deductible is $100 per person, with a co-pay requirement of $6.11 per prescription. For low-income seniors, the deductible will be waived and the co-payment reduced to $2.
The budget also introduces an income-based deductible effective August 2014. The deductible will now be $100 +3% of net income in excess of $100,000, and for senior couples the deductible will become $200 +3% of combined net income in excess of $160,000.
News for students, too. A grant was confirmed that offers up to $800 per term (maximum of two terms per year) for full-time undergraduate study, and up to $365 under the same terms for college students.
The major change for corporations is Ottawa’s new approach to supporting Canadian innovation. The current SR&ED tax incentive program will be tailored to significantly reduce available tax benefits, and we’ll see a new, more direct approach to supporting innovation.
Those changes include reducing the general tax credit rate from 20% to 15%, removing the ability to claim capital expenditures, reducing the currently prescribed “proxy rate” from 65% to 60% and reducing the claim for arm’s length contractors from 100% to 80%.
The feds will instead offer a program with significant new funding over the next five years for direct R&D support and for capital venture initiatives. It looks like the government wants a more direct hand in determining the type and nature of R&D performed in Canada. It seems highly doubtful this type of direct intervention into research decisions will actually improve Canada’s future ability to compete.
So in the end, this year’s budgets don’t have a lot of changes that affect personal and small business accounting. But they’re worth having a look at to be sure – because appropriate planning and organization is still the key to ensuring maximum benefits from your year-end tax planning efforts.