Find out how the Federal Budget could impact your tax return.
2010 Federal Budget brings minor tax changes
Canadians hoping that the popular Home Renovation Tax Credit would be extended in the Federal Budget were disappointed. And there were not a lot of general tax credits or deductions to look forward to in 2010.
For the government, the focus is on controlling the deficit. The goal is to return to a balanced budget. But the return to a balanced budget will be accomplished without tax increases so Canadian taxpayers can take some comfort in that plan.
The budget does contain several personal tax measures that could impact your household:
CTB and GST/HST Credit Entitlement under Shared Custody Arrangements
- Right now, only one can parent can receive the monthly Canada Child Tax Benefit (CCTB) and Universal Child Care Benefit (UCCB) benefit and only one parent can claim the child component of the quarterly GST/HST Credit. For payments beginning in July 2011, these monthly or quarterly amounts may be split in the case when parents are separated and share custody of the child on an equal or near-equal basis.
UCCB Benefits Received by Single Parents
- In cases where the recipient is married or living common-law, the UCCB benefit is included in the income of the lower-income spouse or common-law partner. The benefit may be taxed at a lower rate in two-income families than in single income families where the benefit is simply included in income.
- The budget proposes to fix this inequity by giving single parents the option of including the total UCCB benefits received for all their children either in their own income or in the income of the dependant for whom the Amount for an Eligible Dependant is claimed. In the event that a single parent is unable to claim the AED, they may include it in the income of one of the children for whom the UCCB benefit was paid.
Medical Expenses for Cosmetic Procedures
- Starting after March 4, 2010, medical expenses for purely cosmetic reasons will no longer qualify for the medical expense tax credit. Examples offered by the Department of Finance include surgical and non-surgical procedures purely aimed at enhancing one's appearance such as liposuction, hair replacement procedures, Botox injections and teeth whitening.
- Cosmetic procedures will continue to qualify if they are required for medical or reconstructive purposes. Examples offered by the Department of Finance include surgery to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease.
- Cosmetic procedures which cease to be eligible medical expenses for the purpose of the medical expense tax credit will also cease to be exempt from GST/HST.
Scholarship Exemption and Education Amount
- Changes have been made to the scholarship exemption so it will not apply to post-doctoral fellowships: In the case of a part-time educational program, the exemption will also be limited to the amount of tuition paid for it plus the costs of program-related materials.
Employee Stock Options
- The election to defer tax on the exercise of a stock option benefit until such time as the optioned securities are sold will be repealed for options exercised after 4:00 p.m. EST on March 4, 2010.
- Employers will also be required to withhold tax on the value of the benefit at the time of exercise.
- The purpose of these twin provisions is to ensure that employees whose shares decline in value after the option has been exercised do not fall into financial difficulties such that they cannot meet their tax obligations.
- Many employees with deferred stock options have already fallen into financial difficulties, especially those in the technology sector. To provide relief for these taxpayers, a special elective tax will be introduced which will ensure that the tax liability on a deferred stock option benefit does not exceed the proceeds of disposition of the optioned securities.
What You Should Know for 2009
The recent Federal Budget introduced a number of tax credits and cuts for just about every Canadian taxpayer. Though the credits will take effect on your 2009 tax return, the tax cuts will mean most Canadians will see a little more on every paycheque in the spring.
- All Canadians will benefit from the increase to the basic personal amount from $9,600 to $10,320 in 2009. The basic personal amount is the income you can earn before paying taxes.
- The income threshold on the first tax bracket will increase to $40,726 from $37,885. This means you can earn up to $40,726 and pay 15 per cent tax on this income.
- The second tax bracket was also increased from $75,769 to $81,452. So if you earn $81,452, you will be taxed for the first $40,726 at 15 per cent and the rest of your income at 22 per cent.
These tax savings will be handled through payroll deductions through employers. The income thresholds should be updated by Spring 2009.
The budget also had some specific tax credits for different groups of Canadian taxpayers:
- Starting July 2009, low-income families with two children will see and an increase to the National Child Benefit of up to $436.
- Seniors will see an increase to the age amount of $1,000, providing a tax savings of $150.
Homes and home ownership also a prominent role with the following changes:
- The existing Home Buyer’s Plan (HBP) has been enhanced to allow a non-taxable withdrawal of $25,000 towards the purchase of a home – up from $20,000. First time home buyers can also claim a new tax credit of up to $5,000 for closing costs.
- For existing homeowners, the Home Renovation Tax Credit will provide a 15 per cent tax credit on eligible home renovations in excess of $1,000 and up to $10,000.
Overall, the budget could be seen as good news for Canadian taxpayers. The increase to the personal amount and raising the income threshold should mean a few more dollars every paycheque for the rest of 2009. If you are planning any major renovations or a new home purchase, you can expect a little credit when you file your 2009 tax return.
