Personal Tax Brackets

These brackets are indexed annually by definition, and already were increased for 2009 by 2.5%, and now will be increased further by almost another 5%. The 2009 federal rates and brackets are as follows:

Income Tax Rate
Under $40,726 15%
$40,727 to $81,452 22%
$81,453 to $126,264 26%
Over $126,264 29%

Personal Credits

Personal tax credit amounts also are indexed annually for inflation. However, four of them have been super-sized for 2009 with an extra bump.

Exemption $
Basic $10,320
Spousal $10,320
Eligible Dependent $10,320
Age $6,408

Home Renovation Tax Credit

The Budget included this unusual and time sensitive initiative intended to stimulate the domestic economy. Canadian home-owners have one year from the Budget date (2009) to undertake renovations to their home and/or cottage up to $10,000 and receive a federal tax credit at 15% (excluding the first $1000). Thus, the maximum benefit is $1,350. See Home Renovation Tax Credit for more information.

Entrepreneurship

The small business limit—the amount of income a small business can earn at a very preferred tax rate—will increase federally from $400,000 to $500,000. This will be phased in through 2009 and be fully effective for year-ends from December 31, 2009. In the absence of a similar response from the Province of BC, we once again will have a so-called mid-rate of 22% for income between $4-500,000. The combined BC/federal rate will be 13.5% under $400,000 as of December 1, 2009.

It is consequential that the quarterly, as opposed to monthly, instalment threshold will increase to $500,000. It is also consequential that the 90, as opposed to 60, day filing deadline for tax filing will increase to the new threshold of $500,000.

Electronic Filing

Electronic filing has been voluntary for personal tax filing as well as corporate tax filings. Effective for year-ends after December 31, 2009 for corporations with annual gross revenue in excess of $1M, there will be mandatory electronic filing of corporate tax returns. There also will be mandatory electronic filing of information returns, eg T4s, where there are 50 or more such slips.

RRSPs

The 2009 RRSP limit is $21,000 and requires $116,666 of earned income in 2008.

RRIF/RRSP Losses Deductible on DOD Returns

When the holder of a RRIF or RRSP dies without leaving the plan to a surviving spouse or common-law partner, the entire value of the plan is added to the deceased’s final income tax return.

Any increase in the value of the plan between the date of death and the time the plan is distributed to the beneficiary is reported as income to the beneficiary by means of a T4RSP.

Until the 2009 Federal Budget was passed, if the RRSP or RRIF declined in value between the dates of death and distribution, there was no tax relief for the loss.

The Budget has now allowed any such loss of value in the registered plans which were distributed after the end of calendar 2008 to be carried back to the deceased’s final tax return and deducted against the RRSP or RRIF income included in that return.

Auto Benefits

The rates for employee auto reimbursement or taxable benefits remain unchanged in 2009 from 2008.

Equipment Additions

Manufacturing and processing businesses are back in the limelight. Related equipment additions have been assigned to Class 43 for a while. However, the 2007 Budget resurrected the old Class 29 accelerated, straight line depreciation for additions through 2008. The 2008 Budget added another year to that, and proposed a less generous Class 43 treatment for 2010 and 2011. The 2009 Budget undid that, and extended the Class 29 treatment for 2010-11.

Yet another spending incentive is delivered, this one on the retail technology sector. Computers purchased in a two year window from Budget Day to January 31, 2011 will be eligible for 100% write-off in a new temporary Class 52, and not even bear the half-year rule.

First Time Home Buyers

RRSP accounts have a legacy treatment of financing multiple objectives in life, beyond retirement, specifically home acquisition and furtherance of education. Going forward, the new TFSAs may usurp these purposes from RRSPs. Nonetheless, this Budget gives a token nod to home buyers by increasing the maximum withdrawal from $20,000 to $25,000. In the context of urban real estate markets, this remains trivial.

A new first-time buyer incentive is added, starting on Budget Day. It is a federal tax credit of $750 to be shared by a couple. The test for being a “first-time buyer” is the same as for qualifying RRSP withdrawals, which says there must be a window of 5 calendar years, including the year of purchase, where neither of the couple did own a house. Thus, it appears that, subject to this five year test, one could serially qualify for this new incentive.

Article updated: Nov 2009