- Government Pensions
- B.C. 2012 Budget
- CPP Changes
- Crossing the Border
- Auto Limits
- Corporate Dividend Payments
- GST/HST Changes
- Personal Tax Credits
- Scientific Research Incentives (SR&ED)
- Overseas Employment Tax Credit
- Payroll Taxes in 2012
Back in the ’80s, there were no choices as everyone received their CPP and OAS at age 65. The CPP system was overhauled in the late ’80s, permitting everyone a discretionary 10 year window from age 60-70 to commence collecting that pension, which included premiums or discounts for opting in either side of that magic age of 65. The OAS however remained universally locked at age 65….until now! Starting on July 1, 2013, people turning 65 after this date similarly have a window of time—in this case 5 years—to “opt into” OAS, again receiving a premium reward for deferral.
The longevity factor is finally hitting the statutes. Anyone who is under age 54 on March 31, 2012 (in other words, born after March 31, 1958) will have to wait until age 67 to be eligible to receive OAS. A transitional cohort born between April 1, 1958 and December 31, 1962 will experience a phased-in age bump between age 65 and 67. In other words, this change doesn’t affect anyone until 2023. If you are under the target age of 54 and already have a formal retirement plan forecasting your golden years, you may need to make a slight amendment.
All of these rules also apply to GIS entitlement.
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 and this can be viewed on our InvestorU website.
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 changed the personal tax treatment of eligible dividends for 2012 by lowering the gross-up to 1.38 and lowering the federal tax credit to 15.02%. In BC, the 2012 provincial Budget also has responded by lowering this dividend tax credit to 10.0%
A new B.C. home renovation credit kicks in after March 31, 2012 for seniors over age 65.
The credit is at 10% of qualifying expenditures (details TBA) to a maximum credit of $1,000. The credit is available to both homeowners and renters and also will extend to individuals who share a home with a senior relative.
Remember that the system related to the Canada Pension Plan changed significantly in 2012, affecting future retirees as well as existing retirees who continue to work. These changes are detailed elsewhere on our website.
After May 31, 2012 the duty/tax-free exemptions will increase from $50 to $200 for stays of 24-48 hours and to $800 for longer stays.
The 2012 auto limits increased from 2011. This means that employees can be reimbursed by their employer for business driving at the 53/47 cents/km rates, and employees will be assessed T4 benefits for personal use of company cars at the rate of 26 cents/km.
The Budget lightens the compliance factor in paying dividends. Until now, the law required that eligible dividend payments and ineligible dividend payments be evidenced by separate cheques. That requirement is removed from Budget Day forward. Ergo, a blended payment can be made. It is still required that an eligible dividend be documented as such in corporate records and conveyed to the recipients by the time of payment. There previously existed no provision for late designation; however, the Budget now will allow this up to three years after the due date.
There are some positive changes for small business and public service bodies. Effective for reporting periods commencing after 2012, the annual taxable (GST/HST-in) sales threshold for eligibility for the Quick Method will double from $200,000 to $400,000.
Similarly, the thresholds for using the Streamlined ITC Method or the Prescribed Method also will be doubled, reaching $1M for (GST/HST-in) sales and $4M for taxable purchases.
A new federal 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.
Commencing in 2012, the province of B.C. will match the existing federal fitness and arts credits, as well as the federal withdrawal of the $10,000 maximum for medical expenses claimed in respect of dependents, other than spouses and minor children.
The Budget initiates a number of changes to the overall program for encouraging scientific innovation. A number of these affect the investment tax credit system, which variously will kick in through 2013 and 2014.
This area has been largely static for quite a while, but the government had been telegraphing upcoming changes, which finally arrived. The broad thrust is a shift in approach from tax return-based to grant-based incentives. Thus, the Budget unveiled a number of changes to the tax-based SRED system, most of which are directed at large, not small, corporations.
The overhead proxy calculation will drop from 65% to 60% commencing January 1, 2013 and to 55% commencing January 1, 2014. These changes will be pro-rated around these dates for different fiscal year-ends.
Capital expenditures (including shared-use) will cease to qualify for ITCs commencing after January 1, 2014. Similarly, “substantially-all” capital expenditures will then cease to qualify as SRED deductions and will need to be capitalized through the CCA system.
Commencing January 1, 2013, third party contractor payments only will be eligible for SRED ITCs at 80% of the expenditures.
Commencing January 1, 2014,the SRED ITC rate will be reduced from 20% to 15% for those who qualify at this rate.
In exchange, the government will be increasing the funding of grant programs, like IRAP.
Of narrow application, the overseas employment tax credit rules are slated for the scrap heap, on a phase-out basis from 2013 to 2016, during which the credit factor will phase down at the rate of 20% pa. The phase-down is pardoned before 2016 for any such employment contracts entered into before Budget Day, but then drops to zero.
Small business and charitable org employers were generally eligible for an EI premium rebate on their 2011 T4 filings. The same program will be in place for the 2012 T4 filing year.