Federal budget 2019: Key tax measures that have a direct impact on you

March 20, 2019 | Thomas De Mello


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RBC Wealth Management Services analyzes the latest pre-election proposed tax measures, and the effect they may have on you.

The below is a summary of the key initiatives introduced in the 2019 Federal Budget. Please contact us directly for more information or Click here to read the full article. 

 

Housing measures

The First-Time Home Buyer Incentive 

The budget proposes to introduce the First-Time Home Buyer Incentive. This incentive utilizes a unique financing model that enables first-time home buyers to reduce the money required from an insured mortgage without increasing the amount they must save for a down payment. The incentive is a shared equity mortgage that will give eligible first-time home buyers the ability to lower their borrowing costs by sharing the cost of buying a home with Canada Mortgage and Housing Corporation (CMHC).

 

Home Buyers’ Plan 

To provide first-time home buyers with greater access to their RRSPs the budget proposes to increase the HBP withdrawal limit to $35,000 from $25,000. As a result, a couple will potentially be able to withdraw $70,000 from their RRSPs to purchase a first home. This will be available for withdrawals made after March 19, 2019.

 

Change in use rules for multi-unit residential properties 

When a property is converted from income-producing use (e.g., a rental property) to personal use (e.g., a residential property), or vice versa, you are deemed to dispose of and reacquire the property for income tax purposes. The budget proposes to allow a taxpayer to elect that the deemed disposition that normally arises on a change in use of part of a property not apply. This measure will apply to changes in use of property that occur on or after March 19, 2019.

 

Skills and job measures

Canada Training Credit

The budget proposes to introduce a new Canada Training Credit, a refundable tax credit aimed at providing financial support to help cover up to half of eligible tuition and fees associated with training. Eligible individuals must be at least 25 years old and less than 65 years old and will be able to accumulate $250 each year in a notional account up to a maximum amount of $5,000 over a lifetime.

 

Employment Insurance (EI) Training Support Benefit and leave provisions

The budget proposes to introduce a new EI training benefit to provide income support when an individual requires time to take off work while on training and without their regular paycheque. The benefit is expected to provide up to four weeks of income support every four years - paid at 55 percent of a worker’s average weekly earnings.

 

Senior measures

Permitting additional types of annuities in registered plans

An RRSP must mature by Dec. 31 of the year in which you turn 71. On maturity, the funds must be withdrawn, transferred to a registered retirement income fund (RRIF) or used to purchase an annuity. In exchange for a lump-sum amount of funds, an annuity provides you a stream of periodic payments, generally for a fixed term, for your life or for the joint lives of you and your spouse or common-law partner.

To provide Canadians with greater flexibility in managing their retirement savings, the budget proposes to permit two new types of annuities for certain registered plans:

  • “advanced life deferred annuities” will be permitted under an RRSP, RRIF, deferred profit sharing plan (DPSP), pooled registered pension plan (PRPP) and defined contribution registered pension plan (RPP)
  • “variable payment life annuities” will be permitted under a PRPP and defined contribution RPP.

These measures will apply to the 2020 and subsequent taxation years.

 

Advanced Life Deferred Annuities (ALDA)

An ALDA will be a life annuity the commencement of which may be deferred until the end of the year in which the annuitant attains 85 years of age. There are other requirements to be considered an ALDA, limits on how much of your registered plan can be invested in an ALDA and penalties related to non-compliance which are not discussed here.

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 Variable Payment Life Annuities (VPLA)

The current tax rules generally require that retirement benefits from a PRPP or defined contribution RPP be provided to you by means of a transfer of funds from your account to an RRSP or RRIF, variable benefits paid from your account or an annuity purchased from a licensed annuities provider. However, in-plan annuities (annuities provided to members directly from a PRPP or defined contribution RPP) are generally not permitted under the current tax rules.

The budget proposes to amend the tax rules to permit PRPPs and defined contribution RPPs to provide a VPLA to members directly from the plan. A VPLA will provide payments that vary based on the investment performance of the underlying annuities fund and on the mortality experience of VPLA annuitants. There are other requirements under these proposed rules which are not discussed here.

 

Contributions to a specified multi-employer plan (SEMP) for older members

To bring the SMEP rules in line with the pension tax provisions that apply to other defined benefit RPPs, the budget proposes to amend the tax rules to prohibit contributions to a SMEP in respect of a member after the end of the year the member attains 71 years of age and to a defined benefit provision of a SMEP if the member is receiving a pension from the plan (except under a qualifying phased retirement program). This measure will apply in respect of SMEP contributions made pursuant to collective bargaining agreements entered into after 2019, in relation to contributions made after the date the agreement is entered into.

 

Applying for the Canada Pension Plan benefit

To ensure that all Canadian workers receive the full value of the benefits to which they contributed, the budget proposes to introduce legislative amendments to proactively enroll Canada Pension Plan (CPP) contributors who are age 70 or older in 2020 but have not yet applied to receive their retirement benefit.

 

Guaranteed income supplement earnings exemption

To allow low-income older Canadians to effectively take home more money while they work, the budget proposes to introduce legislation that will enhance the guaranteed income supplement (GIS) earnings exemption beginning with the July 2020 to July 2021 benefit year.

 

Personal tax measures 

Carrying on a business in a Tax-Free Savings Account (TFSA) 

The TFSA is a registered account that allows you to earn tax-free investment income on a wide range of investments. However, a TFSA is liable to pay tax on income earned from a business carried on by the TFSA. Currently, the trustee of a TFSA is jointly and severally liable with the TFSA for any tax payable on income earned from carrying on a business in the TFSA. The budget proposes to extend this joint and several liability to the TFSA holder.

This measure will apply to the 2019 and subsequent taxation years.

 

Employee stock options 

The budget proposes to apply a $200,000 annual cap on the employee stock option grants (based on the fair market value of the underlying shares) that may receive tax-preferred treatment for employees of large, long-established, mature firms. For start-ups and rapidly growing Canadian businesses, employee stock option benefits will remain uncapped.

Further details of this measure will be released before the summer of 2019. Any changes will apply on a go-forward basis only and will not apply to employee stock options granted prior to the announcement of new legislative proposals.

 

Support for Canadian journalism

The budget proposes the following tax measures to support Canadian journalism:

  1. Individuals will be entitled to a 15 percent non-refundable tax credit on amounts paid for eligible digital news subscriptions. This credit will allow individuals to claim up to $500 in eligible costs, for a maximum credit of $75 annually. This credit will be available for amounts paid after 2019 and before 2025.
  2. Qualifying journalism organizations will be able to register as qualified donees as of Jan. 1, 2020.
  3. A refundable labour tax credit will be provided to qualifying journalism organizations for salary expenses incurred in respect of a period on or after Jan. 1, 2019.

Donations of cultural property

The budget proposes to remove the requirement that property be of “national importance” in order to qualify for the enhanced tax incentives for donations of cultural property. This measure will apply in respect of donations made on or after March 19, 2019.

 

Registered disability savings plan (RDSP)

The budget proposes to remove the time limitation on the period that an RDSP may remain open after the beneficiary becomes ineligible for the DTC and to eliminate the requirement for medical certification.  In light of the changes, a rollover of proceeds from a deceased individual’s RRSP or RRIF to the RDSP of a financially dependent infirm child or grandchild will be permitted only if the rollover occurs by the end of the fourth calendar year following the first full calendar year throughout which the beneficiary is ineligible for the DTC.

These measures will apply after 2020. Additionally, an RDSP will not have to be closed on or after March 19, 2019 solely because the RDSP beneficiary is no longer eligible for the DTC. 

The budget also proposes to exempt RDSPs from seizure in bankruptcy, with the exception of RDSP contributions made in the 12 months before filing for bankruptcy. 

 

Tax measures for kinship care providers

The budget proposes to ensure that kinship care providers will be eligible for the Canada Workers Benefit amount and that financial assistance payments received by care providers under a kinship care program are neither taxable, nor included in income for the purposes of determining entitlement to income-tested benefits and credits. These measures will apply for the 2009 and subsequent taxation years.

 

Zero-emission vehicle measures

The budget proposes the following measures that will make it easier and more affordable for Canadians to choose zero-emission vehicles: 

  1. The Government will provide Natural Resources Canada with funds to deploy new recharging and refuelling stations in workplaces, public parking spots, commercial and multi-unit residential buildings, and remote locations. 
  2. A new federal purchase incentive of up to $5,000 for electric battery or hydrogen fuel cell vehicles will be provided where the vehicle’s manufacturer’s suggested retail price is less than $45,000. More details of this program will be provided at a later date. 
  3. Businesses will be able to fully write-off, for tax purposes, the cost of qualifying vehicles in the year they are put in use. Qualifying vehicles will include electric battery, plug-in hybrid or hydrogen fuel cell vehicles purchased by a business.

 

Business tax measures 

 

Small Business Deduction – Farming and fishing

 The budget proposes to extend that relief to sales of farming products and fishing catches to any arm’s length corporation. This measure applies to taxation years that begin after March 21, 2016. 

 

Strengthening beneficial ownership transparency

The budget proposes further amendments to the Canada Business Corporations Act to make the beneficial ownership information maintained by federally incorporated corporations more readily available to tax authorities and law enforcement. 

The 2018 budget had proposed the introduction of enhanced tax reporting requirements for trusts, effective for the 2021 and later taxation years, in order to improve the collection of beneficial ownership information for income tax purposes. 

Beneficial ownership refers to the identity of individuals who own, control or profit from a corporation or trust. 

 

Scientific Research and Experimental Development (SR&ED) Tax Incentive Program

The SR&ED Tax Incentive Program encourages business innovation by providing at 15 percent tax credit for businesses that conduct scientific research and experimental development in Canada. An enhanced 35 percent refundable tax credit is provided to eligible small and medium-sized businesses. The budget proposes to eliminate the income threshold for accessing the enhanced credit.

This measure will apply to taxation years that end on or after March 19, 2019.

 

Closing tax loopholes 

The budget proposes to close the following tax loopholes they perceive may result in some taxpayers paying less than their fair share.

  1. Prevent the use by mutual fund trusts of a method of allocating capital gains or income to their redeeming unitholders where the use of that method inappropriately defers tax or converts fully taxable ordinary income into capital gains taxed at a lower rate.
  2. Improve existing rules meant to prevent taxpayers from using derivative transactions to convert fully taxable ordinary income into capital gains taxed at a lower rate.
  3. Stop the use of Individual Pension Plans to avoid the prescribed transfer limits. These limits are meant to prevent inappropriate tax deferrals when individuals transfer assets out of certain types of pension plans. When an individual terminates members in a defined benefit plan, a tax-deferred transfer of all or a portion of the commuted value of accrued pension benefits can be made to another defined benefit plan sponsored by another employer or to a locked-in plan (subject to prescribed limits). As such, it may be possible to transfer 100 percent of the commuted value of the pension plan to an IPP that is sponsored by a newly incorporated private corporation that is controlled by the individual who has terminated employment with their former employer. To prevent this type of planning, the budget proposes to prohibit IPPs from providing retirement benefits in respect of past years of employment that were pensionable service under a defined benefit plan of an employer other than the IPP’s participating employer (or its predecessor employer). This measure applies to pensionable service credited under an IPP on or after March 19, 2019.

 

Previously announced measures

The budget confirms the Government’s intention to proceed with a number of previously announced tax and related measures, as modified to take into account consultations since their release:

  1. Income tax measures announced on Nov. 21, 2018 in the Fall Economic Statement to:
  • Provide for the Accelerated Investment Incentive
  • Allow the full cost of machinery and equipment used in the manufacturing and processing of goods, and the full cost of specified clean energy equipment to be written off immediately
  • Extend the 15 percent mineral exploration tax credit for an additional five years
  • Ensure that the business income of communal organizations retain its character when allocated to members of the organization for tax purposes

 

  • Enhancing reporting requirements for certain trusts to provide additional information on an annual basis that were announced in the 2018 budget
  • Income tax measures to facilitate the conversion of Health and Welfare Trusts to Employee Life and Health Trusts announced in the 2018 budget
  • Information reporting requirements for certain dispositions of an interest in a life insurance policy announced in the 2016 budget 

 


 

Prior to implementing any strategies, individuals should consult with a qualified tax advisor, legal professional or other applicable professional.

While it has been the long-standing practice of Canada Revenue Agency (CRA) to allow taxpayers to file their tax returns based on proposed legislation, a taxpayer remains potentially liable for taxes under current law in the event that a budget proposal is not ultimately passed. Therefore, if proposed legislation does not become law, it is possible that CRA may assess or re-assess your tax return based on existing legislation. It is recommended that you consult a qualified tax advisor to assist you in assessing the costs and benefits of proceeding with specific budget proposals as they relate to you.