Budget provides modest, targeted breaks for families

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While this year’s budget contains some tax breaks for average Canadian families, the changes aren’t much to get excited about.

Fred O’Riordan, national tax advisor at Ernst & Young, says he wasn’t surprised with the measures in this year’s budget. “I expected it to be a stay-the-course type of budget, both on the tax side and the expenditure restraint side.”

“The government has a little more fiscal leeway right now because the economy performed somewhat better over the past fiscal year than their forecasts indicated in last year’s budget,” O’Riordian explains, adding that in terms of investment income, this budget leaves Canadian families in pretty much the same position they were in pre-budget.

“Opposition political parties were pushing for more aggressive social spending and support for families, and while the government has announced a few initiatives, they’re modest and targeted.”

Jim MacGowan, managing partner at Deloitte’s Calgary Private Company practice, suggests the budget is most notable for what it doesn’t address.

“Many organizations made pre-budget submissions, and a lot of them dealt with increasing RRSP limits, changing the way RRSP income was taxed, and creating a flow-through of income—so if dividend income was earned in the RRSP, it could come out as dividend income,” MacGowan explains.

He also notes many pre-budget submissions suggested raising the level of income at which the top marginal tax rate kicks in. “But nothing was done on that. Right now the top tax bracket kicks in at about half what it does in the U.S. There were really no major tax increases or decreases of broad significance.”

MacGowan acknowledges, however, that the government could only do so much given the political environment. “They’re riding a thin line. They want to continue supporting the recovery and at the same time they’ve got parties on either side with demands.”

Modest, targeted breaks

This year’s budget includes a proposed change to Registered Education Savings Plans that would allow transfers between individual RESPs for siblings, without triggering tax penalties or repayments of Canada Education Savings Grants.

Murray Pituley, director of tax and estate planning with Investor’s Group, says the aim was to level the playing field between people who have family plans and those with individual plans.

“If you’re a parent or a grandparent and you want to save for the education of a number of related siblings, you can open up a family plan under RESP rules and those plans basically give you some flexibility as the subscriber by allowing the allocation of those assets among related children, subject to certain restrictions, of course.”

But, he adds, not everyone has a family plan. So the government is saying, “we’re going to provide subscribers of separate individual RESPs with that same flexibility to allocate assets among siblings as is currently the case for subscribers of family plans.”

Pituley points out the budget also includes a provision for exam fee credits. “Anybody who writes an exam that’s required to obtain a professional status recognized by a federal or provincial statute—a doctor or lawyer or accountant or dentist—will be eligible for the tuition tax credit, provided the exam fee is $100 or more.” And, to make it more widespread, it’s also applicable to anybody who pays an exam fee to be licensed or certified to practice a trade. As such it applies to fields like carpentry, plumbing, and sheet metal workers.

O’Riordan notes three other modest credits were introduced in this year’s budget.

The first is the children’s arts tax credit. “It’s a tax credit of 15% on expenses up to $500. So that’s a net tax saving of $75, assuming the family is in a taxable position.”

This tax credit is similar to the recreation credit in that it’s non-refundable. If it were, more people would qualify because, whether they had any tax liabilities or not, they would still get a $75 cheque. “In this case it’s just a $75 credit against their income taxes owing,” O’Riordan says.

The second is the credit for volunteer firefighters, which is structured to be 15% of $3,000 and—unlike the arts credit—is not dependent on any expenses. “Volunteer firefighters have to be certified as performing 200 hours of volunteer firefighting service, and once the CRA recognizes they’re certified, they would automatically qualify to have 15% on $3,000,” O’Riordan explains.

The third is the family caregiver tax credit, structured as 15% of $2,000. It’s not dependent on having any expenses, but rather having a dependent caregiver who would qualify. “It’s also income tested in the sense that if that dependent earns income, the tax credit would be clawed back accordingly,” O’Riordan notes. “That’s not a big deal for most families if they have a caregiver who would be qualified—they probably aren’t earning any income.”

The caregiver tax credit, Pituley explains, will be delivered by “enhancing an amount you’re able to claim under one of the other dependency-related credits. So for example, if it’s your spouse, you might claim it by getting an extra $2,000 added to your married credit.”

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