2013 Budget Highlights

On March 21, Finance Minister Jim Flaherty delivered his federal budget for 2013. The budget was presented as a plan to “close the loopholes” in the taxation system and make sure that everyone pays their fair share.  It also provided some new tax incentives that you should be aware of.  Here is an overview of budget highlights that may affect your financial plan:

Sports equipment and baby clothing

  • In recognition of the retail price gap between Canada and the U.S., tariffs on baby clothing, hockey equipment, golf clubs, exercise equipment and skis will be eliminated.  Bicycles are not included in this new measure.  It will certainly be interesting to see if any prices are lowered in stores here as a result.

Small business owners

  • There are changes that will increase the tax on dividends out of your small business corporations.  The $750,000 lifetime capital gains exemption has been raised to $800,000 for each Canadian citizen.  This proposed increase would become effective in the 2014 taxation year and the $50,000 increase would be available to those who have already used the previous maximum exemption amount.

Enhanced ‘Super’ tax credit for first-time charitable donors

  • For those of you who have plans to make a donation, an extra 25% tax credit has been announced.  This puts the tax credit up to 40% for the first $200 donated and $54% on donations between $200-1,000.  I was certainly glad to see this included in the new budget as charitable giving has seen a sharp decline in recent years.  Hopefully this increased tax credit will help to spur some new gifts for the charities that need it most.

Adoptive expense tax credit

  • The new Adoption Expense Tax Credit is a 15% non-refundable tax credit that allows adoptive parents to claim eligible expenses relating to the completed adoption of a child under the age of 18.  This measure will apply to adoptions finalized after 2012.

Foreign reporting

  • The government is reminding us to report foreign assets and has even introduced a “whistleblower award”.  The CRA will launch a “Stop International Tax Evasion” program under which it will pay rewards to individuals with knowledge of major tax avoidance with respect to foreign property.  In addition, CRA is planning to revise the Foreign Asset Reporting form (T1135) so that taxpayers are require to provide more detailed information regarding their foreign holdings.

Tax strategies targeted

  • Some tax-motivated life insurance leveraging strategies may not be available in future.  Specifically, the “10/8 strategy” and “Leveraged Insured Annuities” may be no more.  While this strategy seemed quite attractive to many high net worth individuals, it has always provided a fair amount of unknown when it came to CRA’s perspective.  This does not affect any regular term, universal or whole life policies.

Safety Deposit Boxes

  • The new budget plans to immediately suspend the tax deductibility of the cost of renting safety deposit boxes which were previously deductible if used for storing investment related documentation.

Please note: the above highlights are a general overview only and neither comprehensive or meant to be used as specific tax advice.  Feel free to contact me with further questions or for clarification on what these changes may mean to you.

 

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