The following is a summary of the relevant points contained in the Federal Budget released on February 26, 2008:
Personal Income Tax Measures
Tax-free Savings Account (TFSA)
The TFSA is designed to improve the taxation of savings. Beginning in 2009, individuals 18 and older will acquire $5,000 of TFSA contribution room each year. Unused contribution room will be carried forward. Contributions to a TFSA will not be deductible in computing income for tax purposes. Income, losses and gains in respect of investments held within a TFSA, as well as amounts withdrawn, will not be included in computing income for tax purposes or taken into account in determining eligibility for income-tested benefits or credits delivered through the income tax system.
Registered Education Savings Plans
The number of contribution years after a plan has been established has been increased to 31 years from 21 years. The deadline for terminating the plan has been increased to the 35th anniversary of the plan, up from 25 years. The contribution age limit, beyond which no contributions can be made, has been increased to 31 years, up from 21.
Medical Expense Tax Credit
The list of eligible expenses has been expanded to include auditory feedback devices, electrotherapy devices, standing devices and pressure pulse therapy devices.
Dividend Tax Credit
Commencing in 2010, the dividend gross-up factor and dividend tax credit rate for eligible dividends will be adjusted to reflect corporate income tax rate reductions.
Business Income Tax Measures
Scientific Research & Experimental Development
The expenditure limit for the enhanced Investment Tax Credit (ITC) of 35% on qualified SR & ED expenditures will be increased to $3,000,000 from the current level of $2,000,000. As well, the upper limits of the taxable income phase-out range for the enhanced ITC will be increased to $700,000 from $600,000 and the taxable capital phase-out limit will be increased to $50,000,000 from the current level of $15,000,000.
Manufacturing and Processing: Accelerated CCA
Accelerated CCA treatment for M&P equipment will be extended for three more years. For eligible assets acquired in 2009, a 50% straight-line rate will be provided. Assets acquired in 2010 will be eligible for a 50% declining balance rate in the first year, 40% in the second year and 30% thereafter.
Late Remittance Penalties
Effective for source deduction remittances due on or after February, 26, 2008 the government will enact a graduated penalty regime. The penalty will be 3% of the remittance amount if the payment is one to three days late, 5% if it is 4 or 5 days late, 7% if it is 6 or 7 days late and 10% if it is more than 7 days late.
Tier II Remitters – remittances made on or after February 26, 2008 directly to CRA at least one full day before the due date will be considered in compliance with the requirement that it be remitted to a financial institution.
Other areas impacted by budget measures include the following:
- Simplification to some of the rules governing non-resident dispositions of Taxable Canadian Property (mainly for treaty-protected property)
- Minor changes to the Registered Disability Savings Plan rules
- Capital gains tax exemption for the donation of certain exchangeable securities
- Changes to the excess corporate holdings regime for private foundations
As noted, this is only a summary. Please contact your DJB professional for further information