It’s no surprise that the federal government has continued to target boutique tax credits and deductions in its latest budget.
For you and your clients, “there are some good news stories here and some bad news stories,” says Debbie Pearl-Weinberg, executive director of tax and estate planning with CIBC Wealth Advisory Services.
She adds, “The first of these credits the budget eliminates is the Public Transit Tax Credit, which is a credit where people could claim 15% of the cost of public transit passes. The government thinks this hasn’t done enough to encourage the use of transit and it plans to direct more resources toward improving the public transit system.”
Pearl-Weinberg says the government is also looking to create more childcare spaces through its repeal of the 25% Investment Tax Credit for Child Care Spaces. The budget document notes, “It has had very low take-up and has not been effective in increasing the number of [childcare] spaces provided by employers.” The government plans to invest “an additional $7 billion over 10 years, starting in 2018-19, to support and create” more spaces.
Further, Pearl-Weinberg points to the government’s repeal of the additional deduction available to corporations that donate medicine to eligible registered charities. Pearl-Weinberg says, “There will no longer be what I would call a ‘super deduction’ for those gifts. The government didn’t think it was utilized efficiently.”
The budget document says, “Corporations will continue to be able to deduct the fair market value of donated medicines.” Finally, the budget also confirms the First-Time Donor’s Super Credit will expire in 2017, due in part to “the overall generosity of existing tax assistance.”
The government is also eliminating “non-accountable allowances of provincial members of parliament and municipalities and [allowances] of certain individuals on certain boards of education,” says Pearl-Weinberg. “This is to make things consistent with how federal MPs are treated,” given these allowances were eliminated at the federal level years ago.
So what’s the good news?
Consider the changes to the disability tax credit, says Pearl-Weinberg. “In order to claim this credit, you have to get certified by a medical practitioner and the budget proposes including nurse practitioners in the list of eligible practitioners that can certify you. This means someone can got to such a practitioner rather than a medical doctor.”
As well, the government is also making it easier for people to claim the medical expense tax credit, “where [people] have had costs occur with respect to fertility,” she adds. “In the past, you had to have a medical condition but that will no longer be necessary.”
One important thing the government is doing is “absolving credits that are available to caregivers. Currently, there are three different credits that apply: the infirm dependant credit, caregiver credit and family caregiver tax credit. These three credits [will be replaced] with the Canada Caregiver Credit […] The budget document indicates there should be no bottom-line impact; rather, this is being done for simplification purposes, to make it easier for people who act as caregivers to claim this credit.”
Anti-avoidance rules for RESPS, RDSPs
There are three different anti-avoidance measures that are in place for other registered plans, such as RRSPs, RRIFs and TFSAs.
“The budget proposes to extend these rules to RESPs and RDSPs,” says Pearl-Weinberg. “[The government] doesn’t expect a huge impact but they still want to make sure that anti-avoidance transactions aren’t taking place within these registered plans.”
She adds, “Only qualified investments will be permitted in these plans and, if non-qualified investments are acquired, there will be a penalty tax. Similarly, they’ll be subject to the prohibited investment regime. […] [This regime] is aimed at making sure that only investments that are considered arm’s-length in nature are held within these plans.”
Finally, says Pearl-Weinberg, consider that “prohibited advantage rules now apply,” and they make sure that “people don’t take advantage of the tax-preferred nature of RESPs and RDSPs, [thereby] extending an advantage to the person controlling the plan.”
For example, swap transactions haven’t been permitted for other registered plans for “a number of years. If they occur, there [are] very substantial penalty taxes.” Now, this will apply to RESPs and RDSPs as well.
These changes are taking effect right away, so “they will apply to investments that are acquired on or after the budget date [March 22, 2017]. Also keep in mind that what will be considered to be subject to these rules [will be] income that is earned on certain investments held prior to the budget date.”
Pearl-Weinberg concludes, “Because of that, there are going to be transitional rules that apply. These same rules were put in place when [anti-avoidance measures] were put in place for RRSPs and RRIFs.” So be aware of how income from such plans will now be taxed.