2015 Federal Budget

2015 Budget – What is in it for me?

May 2015

Last Tuesday Finance Minister Joe Oliver released his first budget. By a narrow margin the budget is expected to be balanced, and it must be an election year because there were many tax cuts and spending perks. While some of the proposed budget items can benefit a couple different demographic groups, the majority of the new initiatives will benefit a few key groups. While The Family Tax Cut, announced last fall, will benefit families with young children the big winners of the new initiatives proposed last Tuesday are seniors and small business owners.

The majority of the headline grabbing changes will benefit seniors. The recent budget proposes to lower the minimum withdrawals for Registered Retirement Income Funds (RRIF). The mandatory minimum RRIF withdrawals for folks between the ages of 71 and 94 will be lowered. For example at the moment the minimum RRIF withdrawal at the age of 71 is 7.38% the proposed budget will lower that to 5.28%.  Above 94 and below 71 the withdrawal schedule will remain the same. Any withdrawal from a RRIF is fully taxable, in my opinion, lowering the mandatory minimum withdrawal will provide retirees more flexibility and allow them to do more tax planning so their assets last longer.

Last week’s budget also introduced the Home Accessibility Tax Credit (HATC), which will take the form of a non-refundable tax credit that will provide relief of 15% on up to $10,000 of eligible expenses per calendar year. Seniors and disabled persons will be able to claim the HATC for renovations used to make their homes safer and more accessible.

The proposed budget also increased the Tax Free Savings Account (TFSA) contribution limit to $10,000. In my opinion all Canadians over the age of 18 win with this budget item. Personally I believe the TFSA is a flexible, tax efficient investment and savings tool that everyone should use. However the government estimates that the majority of the benefits will accrue to seniors. Based on current savings patterns, the government estimates that people aged 65 and older will receive about 60 percent of the benefits in 2019 from boosting the TFSA limit. The increase is effective for the 2015 year and the TFSA limit will no longer be indexed to inflation.

Small business owners also received a few perks from the recent budget. According to government estimates small business owners employ half of all Canadians working in the private sector. The proposed budget will help those business owners by lowering the business income tax rates from 11% to 9%. The decrease will be phased in starting with a 0.5% cut (to 10.5%) in 2016. The business income tax rate will be cut by an additional 0.5% per year until 2019; by then the rate will be 9%. This rate applies to the first $500,000 of active business income.

Business owners with farm and fishing property will receive an additional benefit. Budget 2015 proposes to increase the capital gains exemption on the sale of qualified

farm and fishing property from $813,600 to $1,000,000. I live in rural Manitoba and work with many farmers, the ability to sell a larger portion of their farm land tax free is a big help.

What’s in it for me? If you are a senior or small business owner – lots! In addition the previously announced Family Tax Cut was detailed in the recent budget, which will provide some help for families with young children. Although there is more in the budget my take is that these groups are the big winners. Outside of these groups there were only a handful of budget items that might be beneficial, unfortunately for those outside of the groups mentioned above there wasn’t much in the budget for you. For all the details of the proposed budget you can visit the government website: www.budget.gc.ca

It is important to mention last week’s announcement was a proposed budget, as of this writing it has still not been passed.

Clinton Orr B.Comm (hons.), CIM, CFP, DMS, FMA  lives in Beausejour and is a portfolio manager with National Bank Financial.

 

This information transmitted is intended to provide general guidance on matters of interest for the personal use of the reader who accepts full responsibility for its use, and is not to be considered a definitive analysis of the law and factual situation of any particular individual or entity.  As such, it should not be used as a substitute for consultation with a professional accounting, tax, legal or other professional advisor. This commentary reflects my opinions alone, and may not reflect the views of National Bank Financial Group.