Tax Letters: 2015 Canadian Federal Budget: Personal Tax

April, 2015

Tax-Free Savings Account (TFSA)

The current annual contribution limit of $5,500 is being increased to $10,000 effective January 1, 2015. However, the annual contribution limit will no longer be indexed to inflation.

Home Accessibility Tax Credit

The Budget proposes a new Home Accessibility Tax Credit which can provide tax relief on a non-refundable basis of 15% on up to $10,000 of eligible expenditures each calendar year, per qualifying individual per eligible dwelling. This tax credit would apply to 2016 and subsequent years.

A qualifying individual is a person who is 65 or older by the end of the year or is eligible for the disability tax credit in the particular year. An eligible individual can also claim this new tax credit in respect of a qualifying individual if he or she claims the spouse or common-law partner amount, the eligible dependant amount, the caregiver amount or infirm dependant amount for the qualifying individual. Consequently, an eligible individual can include a spouse or common-law partner of the qualifying individual or a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece or nephew of the qualifying individual or of the qualifying individual’s spouse or common-law partner.

An eligible dwelling must be the principal residence of the qualifying individual. Eligible expenditures are required to either allow the qualifying individual to gain access to or be more mobile or functional within the dwelling, or to reduce the risk of harm to the qualifying individual within the dwelling. The improvements must be of an enduring nature and be integral to the eligible dwelling. For example, eligible expenditures would include wheelchair ramps, walk-in bathtubs, wheel-in showers and grab bars. Expenditures which would not qualify include those whose primary purpose is to improve or maintain the value of the dwelling; routine repairs, maintenance, gardening, housekeeping or security; or costs of financing the renovation.

Since this new tax credit will not be reduced by any other tax credits or grants, an eligible individual will be able to claim both the Home Accessibility Tax Credit and the Medical Expense Tax Credit, in respect of the same expenditure.

Registered Retirement Income Fund (RRIF) – Minimum Withdrawals

For 2015 and subsequent years, the Budget proposes to reduce the minimum amount required to be withdrawn from a RRIF each year for persons aged 71 to 94. This reduction would result from reducing the nominal rate of return assumption from 7% to 5% and from increasing the inflation index from 1% to 2%. For example, at age 72, the withdrawal amount would drop for that year from 7.48% to 5.4%. Consequently, RRIF holders would have greater flexibility to leave more funds in their RRIF for a longer period of time before these funds must be withdrawn.

To ensure that the proposal applies to all of 2015, RRIF holders who withdraw more than the reduced 2015 minimum amount during 2015 will be able to deduct, in 2015, the re-contribution of the excess made by February 29, 2016.

Lifetime Capital Gains Exemption for Qualified Farming or Fishing Property

The Budget proposes to increase the lifetime capital gains exemption for qualified farming or fishing property from the current indexed amount of $813,600 in 2015 to $1 million. This proposal applies to dispositions of qualified farming or fishing property on or after Budget Day. In addition, for future years, the exemption will be the greater of $1 million and the indexed exemption available on capital gains from the disposition of “qualified small business corporation shares”.

Personal Taxation of Non-Eligible Dividends

The Business Taxation section of this Budget commentary provides the details of the proposed changes to the personal taxation of non-eligible dividends from private Canadian companies that will be made in conjunction with the proposed reductions to the corporate tax rate on small business income.

Registered Disability Savings Plans (RDSPs) – Legal Representation

Budget 2012 introduced a temporary measure, until the end of 2016, to allow a qualifying family member (parents, spouses and common-law partners) to become the plan holder of a RDSP for an adult individual who lacks the capacity to enter into a contract. Since some of the provinces and territories require additional time to deal with this legal issue, the Budget proposes to extend this temporary measure until the end of 2018.

Repeated Failure To Report Income Penalty

Currently, a federal penalty is imposed where a taxpayer fails to report all of their income in their tax return for a taxation year and had also failed to report an amount of income in any of their prior three taxation years. This penalty is currently 10% of the income not reported. In addition, there can be a provincial penalty calculated in a similar manner.

The Budget proposes, for 2015 and subsequent years, to reduce this penalty since the penalty can be disproportionate to the actual associated tax liability, particularly for lower-income individuals. The penalty would only apply if the unreported income was at least $500 in the year. In addition, the amount of the penalty would be the lesser of 10% of the unreported amount and an amount equal to 50% of the difference between the understatement of tax related to the omission and the amount of any tax paid, for example, by way of withholding tax.

Alternative Arguments in Support of Assessments

The Budget proposes to amend the ITA to clarify that the CRA and the courts may increase or adjust an amount included in an assessment that is under objection or appeal at any time, provided that the total amount of the assessment does not increase. This measure will apply in respect of appeals instituted after Royal Assent.

Information-Sharing for the Collection of Non-Tax Debts

The Budget proposes to amend the ITA, Part IX of the Excise Tax Act (ETA), in relation to the GST/HST, and the Excise Act, 2001, in relation to excise duties on tobacco and alcohol products, to permit the sharing of taxpayer information within the Agency in respect of non-tax debts under certain federal and provincial government programs. This measure will apply on Royal Assent.

Transfer of Education Credits – Effect of the Family Tax Cut

The previously announced Family Tax Cut rules prevent transferred education credits from being included in the Family Tax Cut calculation. Consequently, the value of the Family Tax Cut could be reduced for couples who transfer education credits between themselves. The Budget proposes to revise the Family Tax Cut for 2014 and subsequent years to ensure that these couples receive the appropriate value of the Family Tax Cut. The CRA will automatically reassess affected taxpayers for 2014, once the enacting legislation receives Royal Assent, to ensure that they receive any additional benefits to which they are entitled under the Family Tax Cut.

Streamlined Foreign Reporting Requirements – T1135

To reduce the compliance burden on taxpayers the Budget proposes to increase the threshold for the detailed foreign reporting required by the current form T1135 from $100,000 of cost to $250,000. The details with respect to this proposal are provided in the International section of this Budget commentary.

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