The latest Conservative federal budget has been announced and, while containing few surprises, packs tax breaks estimated to result in billions of dollars-worth of savings. Perks that had been hinted at over the past six months came into fruition, such as income splitting, the boosting of the Universal Childcare Benefit, and the doubling of the youth fitness tax credit. A long-awaited increase to Tax-Free Savings Accounts was also announced.
It’s an obviously consumer-focused bill, developed as election season looms on the horizon. “This is very much an election budget,” says Brad Rolph, tax service line leader for Southern Ontario at Grant Thornton LLP. “They seem to touch all the bases, there’s a little bit of everything for everybody.”
While the surprise winners are small businesses – Business Development Bank of Canada has made some investing changes and will boost the small business profile for companies from a cap of $5 million to $10 million – Rolph points out there are a few gems that’ll make life a little easier for average Canadians.
A Hands-Off Approach to the Housing Market
Despite the average Canadian debt-to-income ratio hitting 163.3 per cent, Finance Minister Joe Oliver believes consumers’ demand for credit is leveling out, including the mortgage market. He stated that with the exception of hot markets Toronto and Vancouver, Canadian housing prices are softening at a sustainable pace, and there’s no need to introduce further restrictions to limit borrowing ability. The government has implemented such restrictions four times since 2008 in efforts to stem rapid household debt levels; the most notable changes include the banning of zero-down mortgages, a mandatory 5 per cent down payment, and the capping amortization periods to 25 years for high-ratio buyers.
Income Splitting Is Here to Stay
“For individuals, that’s the biggest tax play in the budget,” says Rolph. “The ability to transfer up to $50,000 in income from one (high-earning) partner to another partner in a lower tax bracket is huge.”
While tax savings from the Family Tax Credit – an election promise made by Prime Minister Stephen Harper during his 2011 campaign – could technically benefit any two-parent household with a child under 18, the biggest winners will be mid-high to high income households.
According to Parliamentary Budget Officer – Canada’s budget watchdog – the Family Tax Credit, which maxes out at $2,000, will only benefit 15 per cent of the country’s wealthiest households.
TFSA Contribution Power-Up
Perhaps the widest-reaching change is the boost to Tax-Free Savings Accounts, which will now allow contributions of up to $10,000 annually – a 82 per cent increase from the previous $5,500 cap.
All-in, the raised ceiling will pluck $85 million back from government coffers this year, moving to $360 million annually by 2019 – which works out to about $1.1 billion in missed revenue for the Feds over the next five years. Savers should also note that the accounts will no longer be indexed to inflation, meaning contribuion room won’t continue to rise by $500 every few years.
But it’s great for Canadians looking for a nice spot to tuck their savings for that first home or other big purchases – and it may not be around forever. Federal Liberal leader Justin Trudeau has already vowed to reverse the increase should he take office.
More Cash for Families
For young families, the official announcement of the Universal Child Care Benefit being increased to $160 a month for children under six and $60 a month for children between six and 17 is welcomed relief. But the estimated 200,000 Canadian families eligible for the benefit better get on it, as the deadline is May 1.
According to the budget, the future healthcare-conscientious Children’s Fitness Tax Credit – worth $1,000 – will kick-in in 2015 and beyond, enticing parents to enroll the young’uns in more recreational activities knowing they’re getting a bit back.
The Child Care Expense Deduction has also been boosted to $1,000, allowing families to recover some of that cash spent on looking after the kids.
More Control for Seniors’ Savings
Seniors certainly lucked out with the budget as well, says Rolph, as the minimum withdrawal requirements for Registered Retirement Income Funds (RRIFs) are lowered.
Under current rules set in 1992, seniors have to withdraw a bare minimum of 7.38 per cent of their RRIFs before 71. The new budget announced that was lowering to 5.38 per cent. The same goes for minimum withdrawals at 94, which were capped at 20 per cent but will now be at 18.79 per cent and move to 20 per cent at age 95.
The Feds have also included a compassionate care benefit, which states Canadians taking time off work to care for a gravely ill family member will get six month’s leave under the employment insurance program (takes effect in January), and a 15 per cent tax credit for seniors and others with disabilities making renovations that increase the accessibility or safety of their homes. Canadians 65 years or older can claim up to $10,000 for things like wheelchair ramps or walk-in tubs under the Healthy Homes Renovation tax credit.
A Proposal For Backing Out of Bank Contracts
The feds have made steps toward providing greater transparency for banking consumers; a proposal has been made to mandate a “cooling off” period for certain types of banking products. That means customers wishing to back out of new signups (due to hidden fees or otherwise) will be able to do so without incurring any charges. There is also renewed call for financial institutions to give better clarity for how mortgage penalties and fees are calculated.
Also read: More Transparency for Mortgage Penalties>