The available budget surplus has allowed room for spending increases in the areas of health care, child care, the environment, national defense, research & development and assistance to seniors.

The measures of interest to you, our valued clients, are as follows:

Corporate Tax Rate Changes

The budget proposes to remove the corporate surtax in 2008. It will also slice 2% from the general corporate tax rate by 2010. These tax rate changes are to be phased in as follows:

After all of these changes are fully implemented in 2010, the corporate tax rates in Ontario will be:

Capital Cost Allowance Changes

There were a number of changes to the rates available for write off of certain business assets. These rate changes included:

• Combustion turbines generating electricity increasing to 15% from the current 8% rate
• Electricity transmission assets, such as power lines and transformers, increasing to 8% up from the current 4%
• Fibre-optic cable is now eligible for a 12% rate
• All other wire and cable used for telephone or data communication will also be eligible for the 12% rate up from the current 5%

These new rates will apply for purchases after February 23, 2005.

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Personal Tax Changes

Personal Tax Credits

The amount an individual can earn before paying income tax is scheduled to increase to $10,000 by 2009. For 2005, the basic personal amount will remain at the inflation adjusted amount of $8,148. In addition to the inflation factor increases, the amount available is to rise by an extra $100 in 2006, $100 in 2007, $400 in 2008 and at least $600 in 2009.

In addition, the personal credit for a dependent spouse, common-law partner or wholly dependent relative is also increasing. In 2005, this credit is $6,919 and it is proposed to rise to $8,500 by 2009.

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Adoption Expense Tax Credit

The budget has introduced, starting in 2005, a non-refundable credit of up to $1,600 for eligible adoption expenses incurred in the process of adopting a child less than 18 years of age. The credit can be split between the two adoptive parents and it is claimed in the year the adoption is finalized. Eligible expenses will include legal and court fees, agency fees, costs of documentation translation, mandatory fees paid to a foreign institution as well as reasonable travel and living expenses for the parents and the child.

Disability Tax Credit and Related Items

In response to the report from the Technical Advisory Committee on Tax Measures for Persons with Disabilities, eligibility criteria for the disability tax credit have been clarified and extended. In addition, several other changes are proposed to provide disabled individuals with additional assistance:

• Increasing the types of disability supports, including reading services for blind individuals, page-turners, symbol boards, etc,. that can be deducted as medical expenses
• Increasing the Refundable Medical Expense Supplement maximum to $750
• Increasing Registered Education Savings Plan terms for disabled beneficiaries
• Increasing the Child Disability Benefit maximum to $2,000

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Medical Expenses Paid By Caregivers

Those of us that pay for medical or disability-related expenses on behalf of a dependant may, in some circumstances, claim up to $10,000 of those expenses starting in 2005. In 2004, the maximum claim was $5,000. The total of these expenses paid must be reduced by the dependant’s medical expense threshold (generally 3% of his or her net income).

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Saving for Retirement

Contribution limits for Registered Retirement Savings Plans (RRSPs) and Registered Pension Plans (RPPs) are currently capped at $16,500 and $18,000 for 2005 respectively. The 2005 budget proposes to increase these limits to $22,000 over the next five years. The proposed increases to these limits are as follows:

The Deferred Profit Sharing Plan contribution limit will continue to be equal to one-half of the money purchase RPP limit for each of those years.

Foreign Property Rule for Deferred Income Plans

Currently, the foreign property rules limit the amount of foreign content allowed in plans such as RRSPs to 30% of the total amounts invested in the plan. The federal budget proposes to eliminate the foreign property limit on pension investments, effective for 2005 and subsequent years.

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GST and Excise Tax Measures

GST Health Care Rebate

In recent years, the restructuring of the delivery of health care services has resulted in some services formerly performed by hospitals being performed by other non-profit organizations. Effective January 1, 2005 those non-profit organizations will be eligible for the same 83% GST rebate that is currently available to hospitals. Formerly, these organizations were only eligible for a 50% GST rebate.

Directors’ Liability

Currently, a corporate director can be held liable for, among other things, a corporation’s unremitted GST where the director has not exercised due diligence in ensuring that the remittances are made. This budget proposes to extend that personal liability to GST refunds received, to which the corporation was not entitled.

GST Web Registry

GST registrants must ensure that input tax credits are claimed only where GST has been paid to suppliers that are valid GST registrants. Currently the only way to verify a supplier’s registration is to contact the Canada Revenue Agency. This procedure can be time consuming in some cases. In order to streamline this process, the government will establish a publicly accessible web-based GST registry which will allow for the verification of a supplier’s GST registration status. It is intended that the registry will be operational within 12 months.

Excise Tax on Jewellery

The 10% excise tax on jewellery which is manufactured and sold in, or imported into Canada will be phased out through a series of rate reductions over the next four years. The tax is to be completely eliminated as of March 1, 2009.

Other

Deposit Insurance Coverage Limit

The deposit insurance coverage limit for deposits in banks and other institutions is proposed to increase to $100,000 of insurable deposits from $60,000, effective immediately.

Agricultural Cooperatives

The budget proposes a deferral on the taxes, including the withholding taxes, on patronage dividends which are paid by agricultural co-operatives in the form of additional shares. These deferred taxes will not be payable until the shares are redeemed. This measure applies to shares issued after 2005.

We are available at your convenience to discuss these new provisions and to assist you in assessing their impact on your business and personal taxation affairs. Your local DJB professionals can help you interpret the impact of these and other changes and assist you in developing effective business structures which minimize your income tax expense.