Tax Alerts
Revised Federal Budget Released
On June 6, 2011, the Honourable Jim Flaherty tabled his seventh budget as Minister of Finance, his first as Minister of Finance with a majority government in the House of Commons. As expected, this budget is substantively the same as the budget tabled by Mr. Flaherty on March 22, 2011, shortly before the Conservative minority government fell on a non-confidence motion.
During the ensuing election campaign, the Conservative Party promised a few more beneficial tax changes beyond those that were proposed in the March 22, 2011 budget. These tax benefits are to be legislated once the federal government has a balanced budget, now projected by the government to be the 2014-2015 fiscal year. The government also announced today that funding related to the harmonization of the Québec Sales Tax will be provided to Québec.
New Budget Measures Announced Today
In addition to a change with respect to political party funding, today’s budget included the following measures.
Funding for Québec Sales Tax Harmonization
The government has included an estimated $2.2 billion in the budget as compensation to the province of Québec for sales tax harmonization. Québec implemented its Québec Sales Tax as a value-added tax in the 1990s, and recently demanded compensation similar to that provided to Ontario and British Columbia when those provinces implemented the HST in 2010.
Registered Canadian Amateur Athletic Association (RCAAA) Consultations
In the original budget, it was proposed that RCAAAs will be required to have promotion of amateur athletics in Canada as their exclusive purpose and exclusive function. As this represents a significant change from the current requirement to have the promotion of amateur athletics in Canada as their primary purpose and primary function, stakeholders were invited to provide feedback by June 30, 2011 on this change. This consultation period was extended today to August 31, 2011.
Possible Future Measures
As mentioned above, the Conservative Party announced other possible tax changes during the election campaign that would be considered when the federal budget is balanced. We expect that these measures will be announced in a future budget.
Increased Tax-Free Savings Account Limit
The government plans to double the amount individuals may contribute annually to their Tax-Free Savings Accounts (TFSAs) from $5,000 per adult per year to $10,000 (subject to indexing). Since the first plans were opened in 2009, TFSAs have proved to be a popular savings vehicle for Canadians, and the higher limits will make TFSAs an important part of any savings plan. The TFSA contribution room is cumulative.
Adult Fitness Tax Credit
A new $500 fitness tax credit for adults will be created, similar to the existing credit for children’s fitness activities.
Increased Children’s Fitness Tax Credit
The children’s fitness tax credit was introduced in 2007. The government proposes to increase the limit of eligible fees from $500 to $1,000 per year per child under age 16.
Family Household Income Splitting
Another proposal is to allow families with children under age 18 to split up to $50,000 in income. This will allow an averaging of tax rates on up to $50,000 per year. This proposal will be of the most benefit to families where there is a stay-at-home parent. Some kind of family income splitting has been advocated by some for a number of years. The first significant family income splitting rules were introduced in 2007 to allow pension income splitting between spouses.
For a summary of the measures that were announced in the original federal budget on March 22, 2011 and reconfirmed today, please see our original 2011 Federal Budget Report.
