Managing Director, Tax & Estate Planning, CIBC Financial Planning and Advice
The federal budget was delivered on Tuesday, March the 19th. I was in Ottawa, inside the budget lockup, and I'm going to summarize for you right now some of the highlights that affect individuals and businesses.
Canada Training Credit
To start, there's a new credit called the Canada Training Credit. It's a refundable credit and it's aimed to help people who would like to go back to school for some retraining and will have some out-of-pocket costs for eligible tuition and fees. Starting this year Canadians will be able to accumulate up to $250 a year in a notional government tracking account that can then be accessed in a future year to help cover up to 50 percent of the costs of tuition. To be able to claim the tuition credit you've got to be a resident of Canada, file a return, have at least $10,000 a year of income. But you can't have too much income – your income must be below $147,000 or you won’t qualify. Each year the CRA will track this notional account and then you can claim it in a future year starting in 2020 to cover up to 50 percent of the cost of that retraining and tuition.
Home Buyers‘ Plan
The homebuyers plan has changed to allow you to take out $35,000 from your RRSP. That's up from $25,000. As a first time homebuyer, you can take funds from your RRSP as a down payment to purchase or build a first home without having to pay any tax on that withdrawal, as long as you pay it back over the next 15 years. No interest, and as long as you pay it back, there's no income inclusion either.
Employee Stock Options
There are also changes proposed for employee stock options. They’re going to cap the limit of the amount of stock options eligible for the 50 percent employment income deduction, effective on a go-forward basis, starting from a date to be announced at some point between now and summer 2019. The government will limit the amount of stock option deduction benefits for high income individuals who are employed at large, long established, mature firms. Similar to the US, they're going to apply a $200,000 annual cap on income from employee stock option grants that will be eligible for the preferred tax treatment. This will be based on the fair market value of the shares at the time the options are granted. This cap, however, will not apply to startups and rapidly growing Canadian businesses, including emerging businesses.
Tax Credit for Digital Subscriptions
There will be a new tax credit for eligible digital news subscriptions starting next year, in 2020. You will be able to claim a 15 percent nonrefundable tax credit on up to $500 of costs that you pay for eligible digital news subscriptions. That’s worth $75. The temporary credit will be starting in 2020 and will go until 2024.
Automated Enrolment for CPP Retirement Benefits
They are also going to help people with entitlement to the Canada Pension Plan benefits. You normally start collecting at age 65. You can actually defer and start until 70. Some Canadians have actually never started and they end up losing out. Beginning in 2020, if you reach the age of 70, and you haven’t applied for the CPP, they're going to automatically enrol you and start sending you your CPP.
Annuities for Registered Plan Holders
Starting next year there will be two new types of annuities for registered plan holders. A new option will be available for most registered account holders, including RRSP and RRIF annuitants who are at least 71 years old. You'll be able to purchase an advanced life deferred annuity, called an ALDA. This is an annuity that can be deferred, with payments only beginning when you reach the age of 85, but it gives you an opportunity to provide a form of longevity insurance, essentially guaranteeing you an annual amount of income every year until your death. For people with a registered pension plan or PRPP there will be variable payment life annuities, called VPLAs. These options again will be available starting in 2020.
Registered Disability Savings Plans
On the RDSP side, the Registered Disability Savings Plan, one of the issues that the community has faced in terms of saving for someone with a disability is that sometimes the individual no longer qualifies for the disability tax credit and in the past they were forced to close their RDSP. Under the new changes announced in the 2019 budget, when an individual no longer qualifies for the disability tax credit, they can keep their RDSP open, even though they will not continue to accrue new government grants and bonds. Any government grants and bonds they’ve received can actually be kept inside that plan, and as long as the beneficiary is at least 51 years of age, they’ll be able to keep some or, in fact, all of the grants and bonds when they start withdrawing funds from their RDSP. This was not the case under the prior rules.
For more, visit the Advice Centre at cibc.com