Seniors, students and job-seekers will see some additional benefits from this year’s budget, re-introduced today in Ottawa. From our March coverage:
Doug Carroll, vice-president, taxation and estate planning at Invesco-Trimark, who was in the budget lock-up with Advisor.ca, notes that the government wanted to bring at least one of the other political parties onside and there are indeed items in the budget that would appeal to the constituency that follow the New Democratic Party.
“Beyond that, they haven’t done much more than make small enhancements and tweaks in terms of the credits that are coming out,” Carroll adds.
Guaranteed Income Supplement
For seniors, Ottawa will top up the Guaranteed Income Supplement (GIS), providing $600 extra per year for single seniors, and up to $840 per year for senior couples. Flaherty says the additional benefit will impact about 680,000 senior Canadians and will cost $300 million. The changes will be effective July 1, 2011 and are aimed at seniors with little or no income other than Old Age Security and the GIS.
Ottawa says that in 2011, a single senior can earn about $19,000 and a senior couple about $38,000 before paying federal income tax.
“The one item which was leaked in advance was the benefit to low income seniors with the extension of the GIS and certainly for those people it would be a welcome opportunity to have that money to make use of,” Carroll says.
Flaherty says the government will soon be proving additional help for those saving for retirement through a new, low-cost, pension plan. “We will work with our provincial and territorial partners to implement the Pooled Registered Pension Plan as soon as possible.” Flaherty adds the government is also working on “modest” enhancements to the Canada Pension Plan.
Enhancing Student Assistance Programs
Budget 2011 will expand eligibility for Canada student loans and grants for both full- and part-time post-secondary students. For instance, the in-study income exemption will be doubled to $100 per week and part-time students with high family incomes will now be eligible for a Canada Student Loan.
For students working abroad, the minimum duration requirement will be reduced to three consecutive weeks from the current 13 weeks with respect to Education and Textbook tax credits.
There’s also a minor change to Registered Education Savings Plans. The budget proposes to allow transfers between individual RESPs for siblings, without triggering tax penalties or repayments of Canada Education Savings Grants. However, the change is not retroactive – the new measures will apply to asset transfers that occur after 2010.
Children’s Art Tax Credit
Ottawa is introducing a new credit for children of up to $500 of eligible expenses for programs associated with artistic, cultural recreational and developmental activities.
“So we’d have the $500 that exists now on the fitness level and this new $500 for cultural activities,” Carroll notes.
Support for Small Business
The Hiring Credit for Small Business will provide a one year EI break for about 525,000 small businesses. “The measure will reduce payroll costs for new jobs and encourage hiring,” Flaherty said in his budget speech.
Ottawa will also extend the 50% straight-line accelerated Capital Cost Allowance for manufacturing or processing machinery or equipment by and additional two years. “This will help businesses and exporters to invest, improve productivity and stay competitive,” Flaherty added.
The government is also spending $10 million in extra support for work-sharing programs, which allow companies to avoid layoffs by offering EI benefits to workers willing to to work a reduced work week. The extension will be up to 16 weeks for active or recently terminated work-sharing agreements, but will be phased out by October 2011.
Reducing the Deficit
Flaherty insists that the government is still on track to return to surplus by 2015-2016. In 2009-2010, the deficit stood at $55.6 billion. The government projects that the deficit will drop 25% in 2010-2011 to $40.5 billion. A further decline to $30 billion is projected for 2011-2012, followed by a drop to $19 billion in 2012-2013, $9 billion in 2013-2014 and $300 million in 2014-2015 before returning to the above-noted surplus of $4.2 billion in 2015-2016.
RRSP Avoidance Rules
The budget proposes several changes to RRSP rules in an effort to clamp down on the use of RRSPs in certain tax planning schemes undertaken by a “small number” of taxpayers, including RRSP “strips.” Such strips purport to enable RRSP annuitants to access their RRSP funds without including the appropriate amount in income.
Although the government has successfully challenged a number of these schemes under the Income Tax Act, they continue to evolve, “often with unexpected and undesirable outcomes for taxpayers. The magnitude of this problem warrants greater assurance through specific legislative action,” the budget states. The new rules are similar to anti-avoidance rules currently applied to Tax-Free Savings Accounts.
Individual Pension Plans
The budget proposes that annual minimum amounts will be required to be withdrawn from IPPs once a plan member reaches the age of 72. This mirrors the current minimum withdrawals from RRIFs.
In addition, contributions made to an IPP that relate to past years of employment will effectively be required to be funded first out of a plan member’s existing RRSP, or by reducing the individual’s accumulated RRSP contribution room before new deductible contributions in relation to past service may be made.
This and That
Ottawa has again moved to extend the 15% Mineral Exploration Tax Credit, which was to expire March 31, 2011. The credit will now expire on March 31, 2012, costing the government an additional $90 million.
The budget also proposes to renew funding for its Clean Air Agenda, by providing $870 million over two years for projects such as the $400 million Eco-Energy retrofit program to help homeowners make their homes more energy efficient.
Registered Disability Savings Plan beneficiaries with shortened life expectancies will now have more flexibility to withdraw their RDSP assets without requiring the repayment of other programs, such as Canada Disability Savings Grants.
The Bottom Line
Carroll points out that had there been something bigger in the budget, then the tax credits really would have been little more than footnotes. “But apart from the changes to the GIS, there doesn’t appear to be anything that significant.”
But that doesn’t mean the myriad of credits should be ignored. Even though the tax credits are not related to investment income, Carroll says, these are clearly credits that are positive on a personal level – for seniors, for children and students, all clients, or potential clients, of financial advisors.
“There’s just not much depth in any of these items from an investment planning perspective. They did what they could to appease as many people as they could, but I don’t think anyone will be particularly happy with what they have done overall.”