Dozens of Tax Changes Round Out a Neutral Budget

The 2011 Federal Budget has been released and financial professionals are digesting the contents. There are a lot of small changes that may bring modest tax relief to certain segments of the population, but no big surprises and no significant program changes. The underlying question, however, is will it still be with us by the weekend?

This commentary will review some of the important personal and business tax changes and some additional interesting highlights and measures presented today, all of which will be analyzed in more detail in the coming weeks in Knowledge Bureau Report.

• Families will be treated to a series of new proposals including a new Children's Arts Tax Credit, a Family Caregiver Tax Credit and enhanced claims for medical expenses for those supporting other dependants. However, the tax on split income will be extended to capital gains on shares which produce dividend income taxed under this provision.

• Students will find new provisions for claiming exam fees and education tax credits for studying in short term courses abroad.

• Investors will be interested in changes to RESPs, RDSP, IPP and RRSP rules

• Small businesses may benefit from a temporary Hiring Credit, designed to offset E.I. premiums for new employees in 2011. 

• In addition, the accelerated CCA rate for equipment and machinery has been extended for another two years.

• Doctors and nurses who go to remote areas to practice will benefit from some student loan forgiveness.

• RESP assets can be more easily moved between siblings and students studying abroad will have expanded access to education-related tax credits.

• The most vulnerable of seniors will receive a boost to the Guaranteed Income Supplement, but there are no changes to RRIF income requirements, TFSA contribution rules or the pension splitting age limit as many had hoped. For the disabled, RDSP owners with shortened life expectancy will be exempt from some of the clawback of grants and bonds for withdrawals during the first 10 years of a plan.

• RRSP anti-avoidance rules are meant to discourage "RRSP strips" that have resulted in the loss of life savings for some Canadians.

• Individual Pension Plan contribution and withdrawal rules are modified to level the playing field with other retirement plans.

• Employee Profit Sharing Plans are under the microscope to make sure that they remain an incentive to hard work by dedicated employees.

• Additional classes of organizations that receive donations must now jump through the hoops required of registered charities.

• Financial literacy got a boost in today's budget. There will be an additional 3 million dollars per year allocated to the effort, in addition to the 2 million currently invested in the Financial Consumer Agency of Canada (FCAC). And, plans are in place to enable the new Financial Literacy leader to soon be appointed.

• Consumer protection measures include banning those unsolicited cheques that arrive at your door, inviting you to dip into the unused credit limit on your credit card. There is no grace period, so the interest clock starts ticking immediately. Pre-paid gift cards are being scrutinized also.

Time will tell whether these tax measures will be implemented, and whether they will make a difference to Canadians, as the opposition parties have noted they will not support it.