The minority government March 22 Budget morphed intact into a majority government June 6th Budget:

Kids

The stimulus concept behind the recent Fitness credit has been expanded to a parallel credit for eligible expenditures related to artistic, cultural, recreational or developmental activities. The qualifying child must be under age 16 on January 1st of the year. The credit similarly is 15% of up to $500, therefore, worth a maximum of $75 per child.

While we applaud the spirit of this kind of initiative, the practical issue is that the “cost” to society of managing the system to utilize this incentive surely carries unmeasured costs that soak up a significant part, if not all, of the $75 saving. It would be far more efficacious simply to increase the basic child credit, and leave the directed spending decisions to the parents. This is effective immediately for 2011.

Investors

The dual dividend tax system legislated a few years ago created two kinds of personal tax treatments of dividend income—eligible and ineligible. They differ in how much personal tax they each bear.

It is the intent now in our tax system that changes in the personal dividend tax regime be “sympathetic” to changes in corporate tax rates. In this case, as corporate rates have come down, the personal system like-wise must ratchet down.

The 2011 Budget slightly changes the personal tax treatment of eligible dividends for 2011 by lowering the gross-up to 1.41 and lowering the federal tax credit to 16.43%. In BC, the provincial government also has responded by lowering its tax credit to 10.31%.

RRSP Limit

The 2011 RRSP limit increases by $450 to $22,450. This requires that your 2010 earned income is at least $124,722.

Family Caregiver Tax Credit

A new credit kicks in for 2012 for taxpayers who provide support to spouses and minor children with mental or physical infirmities. The credit is $2,000, and thus worth $300 as a federal tax saving. It will be in addition to various related existing tax relief clauses (ie spousal, child, eligible dependent, infirm dependent and caregiver credits). The amount by which the income of the dependent fully nullifies this collection of credits will ratchet up by the amount of this new credit.

Donations in Kind

The 2011 Budget clamps down on donating flow-through shares, effective Budget Day. The exemption from capital gains tax will apply only where the gain exceeds a “threshold amount”, which essentially is the original cost base before “cost base” adjustments that arise from the particular flow-through characteristics of the security. Typically, with resource flow-throughs, the adjusted cost base finds its way down to zero. With this new law, the amount of the flow-through cost base reduction will be exposed to tax, rather than exempt, upon donation. Any tax-free portion that results can only be the fair market value of the security above what was originally paid for it.*

* NOTE: THE NEW PROVISION ONLY APPLIES TO FLOW-THROUGH SHARES ACQUIRED ON OR AFTER BUDGET DAY. THUS, FLOW-THROUGH SHARES HELD ON BUDGET DAY AND DONATED AFTER BUDGET DAY REMAIN ELIGIBLE FOR THE PREVIOUS ADVANTAGEOUS TREATMENT.

Auto Limits

The 2011 auto limits remain unchanged from 2010. This means that employees can be reimbursed by their employer for business driving at the 52/46 cent/km rates, and employees will be assessed T4 benefits for personal use of company cars at the rate of 24 cents/km.

Corporations & Partnerships

Historically, participation in a partnership has provided a tax deferral opportunity from the mechanism by which the partner’s share of partnership profit is rolled up to each partner. Where the partnership has a different fiscal year-end to any of its partners, then, effectively a year’s deferral of income taxation occurs. This deferral opportunity was removed back in 1995 for individual partners by way of a “stub period accrual”, and now, effective Budget Day, a similar law applies to corporate partners (including first-time “transitional relief”). There are 12 pages of explanatory detail of this new measure, which needs to be absorbed if one is affected.

Small Business

An old stimulus trick was brought back for 2011. Small business can claim a “one-time hiring credit” to a maximum of $1,000, by way of a credit that is measured by its 2011 employer EI premium costs vis-à-vis 2010.

Commencing in 2011, electronic filing of tax returns will be mandatory for corporations with gross revenue in excess of $1M, with a few specific exceptions. Significant penalties for non-compliance will apply, starting at $250 and increasing over time to $1,000.

The manufacturing sector receives small tax incentives from time-to-time. The CCA class 29 for manufacturing equipment carries a preferential accelerated write-off. This preference has been extended in the 2011 Budget to the end of 2013.

Some corporate tax rates will drop through 2011, on a 12-month phase-in basis:

Medical

Family members who provide financially to medical support of other family members may be able to claim these costs under their own medical credit claim. Currently, the claim is reduced by an amount related to the income of the dependent, and further restricted to a maximum of $10,000 per annum. The latter restriction has been removed effective 2011.

Education

Some minor tinkering has been done with RESPs, effective in 2011. Where individual, as opposed to family, RESPs have been set up, and one such child does not pursue qualifying education, that plan can transfer its assets without penalty to the RESP of a sibling who does qualify, provided that person was under age 21 when that plan was opened.

Article published: Jun 2011