2014 Federal Budget Highlights

On Tuesday, Finance Minister Jim Flaherty delivered the 2014 federal budget. While last year’s budget brought in a number of major changes, especially for the investment and the insurance industries, the 2014 budget was much more subdued. Like last year, I wanted to again provide a brief overview of the budget highlights that may affect your financial situation:

GST/HST Credit
• Starting with your 2014 tax return, you will no longer have to elect to apply for the GST/HST credit on your T1 personal return. The Canada Revenue Agency (CRA) will automatically determine whether or not you are eligible for this credit and if you are, they will send you a notice of determination. In the case of eligible couples, the credit will be paid to the spouse or common-law partner whose return if assessed first.

Medical Expense Tax Credit
• This year’s budget expands the list of expenses eligible for the medical expense tax credit to include 2 new items. The first addition is for specially trained service animals and the cost, care and maintenance expenses as well as reasonable travel expenses for the training. The second addition is for the design of an individualized therapy plan such as Applied Behaviour Analysis (ABA) therapy for children with autism, as long as certain conditions are met.

Taxation on Split Income
• Income splitting rules were previously introduced in order to balance retirement income between two spouses. The 2014 budget proposes to expand the definition of “split income” to include income that is paid or allocated to a minor from a trust or partnership in certain circumstances.

Adoption Expense Tax Credit
• The new Adoption Expense Tax Credit was introduced in last year’s budget as 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 and the measure applied to adoptions finalized after 2012. In the 2014 budget, they proposed to increase the maximum amount of such eligible expenses from $11,774 to $15,000 for 2014 and also to have it indexed thereafter.

Donations Made by Wills & Beneficiary Designations
• The new budget has provided additional flexibility in how donations made by will or beneficiary designations will be treated for tax purposes starting in 2016. Under the new rule, these donations will no longer be deemed to be made by an individual immediately before their death but instead will be deemed to have been made by the estate at the time the property is donated to the registered charity. The estate would then have the option to allocate the donation to the taxation year that makes the most sense (with limitations).

Taxation of Trusts & Estates
• The budget contains measures that will increase the tax for some trusts and estates starting in 2016. In short, all trusts and estates will be subject to the highest marginal rate applicable to individuals and will not benefit from the graduated rates as certain trusts currently do. Exceptions include estates that will still be eligible for the graduated rates for the first 36 months after an individual’s death and trusts that benefit individuals eligible for the disability tax credit.

Search & Rescue
• Finally, a smaller but important gesture for my fellow Search & Rescue volunteers! The budget provides for a new $3,000 non-refundable tax credit (that would result in $450 savings) for individuals that perform a minimum of 200 hours of volunteer search & rescue services in a year. This credit is similar to the existing tax credit for volunteer firefighters.

Please note: the above highlights are a general overview only and neither comprehensive or meant to be used as specific tax advice. There are a number of other items included in the 2014 budget that I simply didn’t have enough room to include. Feel free to contact me with further questions or for clarification on what these changes may mean to you.