- Children’s Arts Tax Credit
- Volunteer Firefighters Tax Credit
- Family Caregiver Tax Credit
- Medical Expense Tax Credit for Other Dependants
- Child Tax Credit Eligibility
- Tuition Tax Credit – Examination Fees
- Education Tax Measures – Study Abroad
- RESPs – Asset Sharing Among Siblings
- RDSPs – Shortened Life Expectancy
- RRSPs – Anti-Avoidance Rules
- Individual Pension Plans
- Tax on Split Income – Capital Gains
- Mineral Exploration Tax Credit
- Administrative Changes
- Children’s Special Allowances Act
- Employee Profit Sharing Plans
The Budget proposes a new Children’s Arts Tax Credit to promote participation of children in artistic, cultural, recreational or developmental activities. Parents will be able to claim and share a 15% non-refundable tax credit based on an amount up to $500 in eligible expenses per child paid in a year. For a child under 16 years of age at the beginning of the year, the credit will apply to enrolment in an eligible program. If a child is eligible for the Disability Tax Credit and is under 18 years of age at the beginning of the year, the credit may be claimed on an additional $500 disability supplement amount when a minimum of $100 is paid in eligible expenses.
An eligible expense will include a fee paid in the taxation year to a qualifying entity for the registration or membership of a child in an eligible program of artistic, cultural, recreational or developmental activities; however, fees paid for the purchase or rental of equipment for exclusive personal use (e.g., musical instruments), travel, meals and accommodation will be excluded. Expenses eligible for purposes of the child care expenses deduction, or the Children’s Fitness Tax Credit, will also be ineligible.
A qualifying entity will be a person or partnership, other than an individual who is under 18 years of age, that offers one or more eligible programs of artistic, cultural, recreational or developmental activities. A qualifying entity will not include the spouse or common-law partner of a person who is claiming the credit in respect of his or her child.
An eligible activity will be a supervised activity suitable for children that:
- contributes to the development of creative skills or expertise in an artistic or cultural activity;
- provides a substantial focus on wilderness and the natural environment;
- helps children develop and use particular intellectual skills;
- includes structured interaction among children where supervisors teach or help children develop interpersonal skills; or
- provides enrichment or tutoring in academic subjects.
This measure will apply to eligible expenses paid in the 2011 and subsequent taxation years.
The Budget proposes a Volunteer Firefighters Tax Credit to allow eligible volunteer firefighters to claim a 15% non-refundable tax credit based on an amount of $3,000. To be eligible, an individual must be a volunteer firefighter who performs at least 200 hours of volunteer firefighting services in a taxation year, for one or more fire departments, that consist primarily of:
- responding to and being on call for firefighting and related emergency calls;
- attending meetings held by the fire department; and
- participating in required training related to the prevention or suppression of fires.
Volunteer service hours performed by a firefighter for a fire department will be ineligible if the firefighter also provides firefighting services, otherwise than as a volunteer, to that fire department.
CRA is in the process of developing the details of the certification process the individual claiming the credit will have to satisfy.
This measure will apply to the 2011 and subsequent taxation years.
In order to provide new support to caregivers of dependants with a mental or physical infirmity, including spouses, common-law partners and minor children, the Budget proposes a new 15% non-refundable Family Caregiver Tax Credit based on an amount of $2,000 that will apply beginning in 2012.
Caregivers will benefit from the Family Caregiver Tax Credit by claiming an enhanced amount for an infirm dependant under one of the existing dependency-related credits.
The Budget also proposes to increase for 2012 the threshold at which the Infirm Dependant Credit begins to be phased out, so that the enhanced amount is fully phased out at the same income level as the 2012 enhanced Spousal or Common-Law Partner Credit.
Consistent with existing measures, only one Family Caregiver Tax Credit will be available in respect of each infirm dependant.
The $2,000 Family Caregiver Tax Credit amount will be indexed to account for inflation for 2013 and subsequent taxation years.
A taxpayer may claim the Medical Expense Tax Credit for eligible expenses incurred in respect of himself or herself, his or her spouse or common-law partner, or his or her child who is under 18 years of age. Caregivers may also claim the credit for eligible expenses incurred in respect of a “dependent” relative if the caregiver pays medical or disability-related expenses of the dependent relative.
Currently, a caregiver may only claim the eligible expenses of a “dependent” relative that exceed the lesser of 3% of the dependant’s net income and an indexed dollar threshold ($2,052 in 2011), to a maximum of $10,000. In contrast, there is generally no limit on the amount of eligible expenses a taxpayer can claim for himself or herself, a spouse or common-law partner or a child under 18 years of age. The Budget proposes to remove this $10,000 limit on eligible expenses.
This measure will apply to the 2011 and subsequent taxation years.
The Child Tax Credit (“CTC”) is a 15% non-refundable credit based on an indexed amount ($2,131 in 2011) that can be claimed by parents for each child who is under 18 years of age at the end of a taxation year. However, current rules restrict claiming the credit to not more than one individual per domestic establishment, which means that when two or more families share a home, only one individual in one family may claim the CTC in respect of his or her children.
The Budget proposes to repeal the rule that limits the number of CTC claimants to one per domestic establishment to ensure that sharing a home does not prevent otherwise-eligible parents from claiming the CTC.
This measure will apply to the 2011 and subsequent taxation years.
The Budget proposes to amend the Tuition Tax Credit to recognize fees (in excess of $100) paid to an educational institution, professional association, provincial ministry or other similar institution for taking an examination required to obtain a professional status recognized by federal or provincial statute, or to be licensed or certified in order to practice a profession or trade in Canada.
Ancillary fees and charges paid in respect of occupational, trade or professional examinations (e.g., cost of examination materials used during the examination, certain prerequisite study materials) will also be eligible for the credit. Eligible ancillary fees and charges will not include costs for travel, parking, equipment (such as lab coats, calculators, computers or other items of enduring value), or other costs that are currently ineligible for the Tuition Tax Credit.
This amendment will not apply to fees for examinations taken in order to begin study in a profession or field.
This measure will apply to eligible amounts paid in respect of examinations taken in 2011 and subsequent taxation years.
Presently, Canadian students in full-time attendance at a university outside of Canada in a course lasting at least 13 consecutive weeks and leading to a degree are eligible for the Tuition Tax Credit, the Education Tax Credit and the Textbook Tax Credit. Similarly, a Canadian student can currently receive Educational Assistance Payments (“EAPs”) from a Registered Education Savings Plan for enrolment at an educational institution outside Canada that provides courses at a post-secondary school level provided the student is enrolled in a course of not less than 13 consecutive weeks.
Many programs at foreign universities are based on semesters shorter than 13 weeks, resulting in many Canadian students being denied tax recognition of education costs that would otherwise be eligible for the credits or access to EAPs.
In order to improve the tax recognition of education costs and access to EAPs for Canadian post-secondary students who study abroad, the Budget proposes to reduce the minimum course-duration requirement from 13 to three consecutive weeks. It also proposes that the 13-consecutive-week requirement for EAP purposes be reduced to three consecutive weeks when the student is enrolled at a university in a full-time course.
This measure will apply with respect to tuition fees paid for courses taken in the 2011 and subsequent taxation years and to EAPs made after 2010.
Registered Education Savings Plans (“RESPs”) are tax-assisted vehicles designed to help families save for their children’s post-secondary education. An RESP may be an individual plan or a family plan. Family plans provide greater flexibility for families with more than one child because the assets of the plan can be allocated among siblings, subject to certain restrictions.
When separate individual plans have been established for siblings, the Budget proposes to allow transfers between individual RESPs, without tax penalties and without triggering the repayment of the Canada Education Savings Grants (“CESGs”) that are paid by the Federal Government, provided that the beneficiary of a plan receiving a transfer of assets had not attained 21 years of age when the plan was opened. This measure provides subscribers of separate individual plans with the same flexibility to allocate assets among siblings as exists for subscribers of family plans. The proposal is especially helpful when RESP subscribers are individuals who are not the parents or grandparents of the beneficiaries, as they can subscribe only for individual plans. These measures will apply to asset transfers that occur after 2010.
Introduced in the 2007 Federal Budget, Registered Disability Savings Plans (“RDSPs”) are designed to provide long-term tax-assisted savings to individuals with disabilities and their families. This year’s Budget proposes to enhance the flexibility of RDSPs for beneficiaries with shortened life expectancies by providing earlier access to their savings, without requiring the repayment of Canada Disability Savings Grants (“CDSGs”) and Canada Disability Savings Bonds (“CDSBs”).
The Budget proposes to permit an RDSP beneficiary who has a physician-certified shortened life expectancy (of five years or less) to withdraw more of their RDSP savings without triggering the present 10-year repayment rule for CDSGs and CDSBs received by an RDSP on a premature withdrawal from or termination of the plan, subject to specified limits and certain conditions.
To take advantage of this measure, the plan holder (often a parent or other close relative) will be required to file an election in a prescribed form, together with the medical certification, with the RDSP issuer, who then notifies Human Resources and Skills Development Canada of the election. If a plan holder does not make such an election, then the current RDSP rules, including the 10-year repayment rule, will continue to apply to the plan.
Currently, withdrawals from an RDSP comprise a taxable portion and a non-taxable portion based on the relative proportions of taxable assets (including CDSGs, CDSBs and investment income) and non-taxable assets (“private” contributions of capital) in the plan.
Under the proposal, withdrawals made at any time following an election will not trigger the repayment of CDSGs and CDSBs provided that the total of the taxable portions of the withdrawals does not exceed $10,000 annually. The total annual withdrawals may exceed $10,000, as some of the withdrawal may be derived from non-taxable portions. If withdrawals of taxable amounts exceed $10,000 in a year, the normal 10-year repayment rule will apply, to the extent that CDSGs and CDSBs and other taxable assets remain in the plan.
When an election has been made by the plan holder, the following proposed rules will apply:
- No further contributions to the plan will be allowed, although a tax-deferred rollover of a deceased parent’s or grandparent’s RRSP or RRIF to the RDSP of a financially-dependent infirm child or grandchild may still be available, even when the child or grandchild has a shortened life expectancy.
- No new CDSGs or CDSBs can be paid to the plan. Upon the death of the RDSP beneficiary, all remaining CDSGs and CDSBs which were received by the plan within the preceding 10 years must be repaid.
- No CDSG or CDSB entitlements will be carried forward in respect of years subject to the election, other than for the year in which the election is made.
- The minimum withdrawal requirements that ordinarily apply in the year in which a beneficiary attains 60 years of age will continue to apply to the plan starting in the year following the election, regardless of the age of the beneficiary.
These rules will generally apply to the plan on an ongoing basis, unless the plan holder reverses the election.
A plan holder will be permitted to reverse an election on a prospective basis at any time. In this case, the regular RDSP rules will generally apply, except that no new CDSGs and CDSBs can be paid into the plan until the year after that in which the election is reversed.
To reverse an election, the plan holder will be required to provide a notice in prescribed form to the RDSP issuer. The issuer will be required to notify Human Resources and Skills Development Canada of the reversal.
Reversing an election will not preclude a plan holder from making a subsequent election if a new medical certification of shortened life expectancy is obtained. However, a subsequent election will be permitted only two or more years after the reversal of the preceding election.
Withdrawals of taxable amounts exceeding the $10,000 annual limit will result in the automatic reversal of an election.
This measure will apply after 2010 to withdrawals made after Royal Assent to the enacting legislation. However, as a transitional rule, beneficiaries making an election under this measure will be permitted to utilize their 2011 withdrawal limit in 2012 provided that the required medical certification was obtained before 2012.
The Budget proposes several changes to the Registered Retirement Savings Plans and Registered Retirement Income Funds (both referred to herein as “RRSPs”) rules to address concerns regarding the use of RRSPs in certain tax planning strategies, including “RRSP strips.” RRSP strips, which may take various forms, are, according to the Budget documents, schemes which purport to enable RRSP annuitants to access their RRSP funds without including an appropriate amount in income.
The Budget proposals augment the existing RRSP anti-avoidance rules by introducing rules similar to some of the anti-avoidance rules that currently apply to Tax-Free Savings Accounts (“TFSAs”), namely:
- the “Advantage” rules – introduced to prevent the perceived abuse of the tax attributes of TFSAs. The proposed RRSP advantage rules will specifically include benefits from RRSP strips;
- the “Prohibited Investment” rules – the definition of “prohibited investments” for TFSAs will be adopted for RRSPs. TFSA prohibited investments include debt of the TFSA holder, investment in entities in which the TFSA holder (or non-arm’s-length person) has a “significant interest” or with which the holder does not deal at arm’s-length; and
- the Non-Qualified Investment rules – the current rules for non-qualifying investments of RRSPs will be modified to be consistent with the TFSA rules.
Subject to two exceptions, these new provisions will apply to transactions occurring, and investments acquired, after Budget Day. For this purpose, investment income generated after Budget Day on previously-acquired investments will be considered to be a “transaction occurring” after Budget Day. The exceptions to this effective date are:
- The RRSP advantage rules will not apply to “swap transactions” undertaken before July 2011. In addition, swap transactions undertaken to ensure that an RRSP complies with the new rules by removing an investment that would otherwise be considered a prohibited investment, or an investment which gives rise to an advantage under the new proposals, will be permitted until the end of 2012.
- In relation to income generated on prohibited investments, the portion of capital gains accruing after Budget Day will be considered investment income earned after Budget Day. However, the 50% tax will not apply to prohibited investments that were held on Budget Day by an RRSP if disposed of before 2013. If an investment which is described in the new definition “prohibited investment” was acquired before Budget Day and is still held in an RRSP after 2012, it will be deemed to be a prohibited investment acquired on January 1, 2013.
Defined-benefit Registered Pension Plans (“RPPs”) may be established for the owner-manager of a corporation. Sometimes a spouse or other family member (who is also employed by the corporation) is added as a member of such a plan. The Budget proposes two new tax measures that will apply to these plans (referred to as “Individual Pension Plans” or “IPPs”).
The Budget proposals will require that:
- annual minimum amounts must be withdrawn from IPPs, similar to the current minimum withdrawal requirements from RRIFs, once a plan member reaches the age of 72; and
- contributions made to an IPP that relate to prior years of employment will, in effect, be required to be funded first out of a plan member’s existing RRSP assets or by reducing the individual’s accumulated RRSP contribution room, before new deductible contributions in relation to the past service may be made.
For this purpose, an IPP will be considered a defined benefit RPP when:
- it has three or fewer members, if at least one member is “related” for tax purposes to an employer that participates under the pension plan; or
- it is a “designated plan,” if it is reasonable to conclude that the rights of one or more members under the plan exist primarily to avoid this new definition.
For members of IPPs who reached 72 years of age in 2011 or earlier, the required withdrawals will begin in 2012. For those IPP members who reach age 72 after 2011, withdrawals must start in the year in which they attain 72 years of age.
With respect to IPP past service contributions, the new measure will apply to contributions made after Budget Day, except that it will not apply to IPP past service contributions made in respect of past service that was credited to an IPP member before Budget Day under terms of the IPP submitted for registration on or before Budget Day.
The Tax Act contains a number of rules intended to prevent income-splitting arrangements between family members and other non-arm’s length persons. One of these rules, referred to as the “tax on split income” or “kiddie tax”, limits income-splitting techniques that seek to shift certain types of income to a minor. Generally, this income consists of taxable dividends and shareholder benefits from private corporations and income from a partnership or trust attributable to providing property or services to a business carried on by a person related to the child.
According to the Federal Government, certain income-splitting techniques have developed which generate capital gains in order to avoid the tax on split income. To counter these arrangements the Budget proposes to extend the tax to capital gains realized by, or included in the income of, a minor from a disposition of shares of a corporation to a person who does not deal at arm’s length with the minor, if taxable dividends on the shares would have been subject to the tax. Capital gains that are subject to this measure will be treated as dividends and will not benefit from the lower capital gains inclusion rate or the lifetime capital gains exemption. This proposal should not apply to bona fide dispositions to an arm’s length third party.
This measure will apply to capital gains realized on or after Budget Day.
In the Budget, the Federal Government also said that it will continue to monitor the effectiveness of the tax on split income and take appropriate action if other income-splitting techniques should develop.
Beginning this year, the province of Quebec will supplement AgriInvest with the new Agri-Québec program, an agricultural income stabilization account program that is very similar to the AgriInvest program.
The Budget proposes amendments to provide the same income tax treatment to investments made under the Agri-Québec program as is currently provided to investments under the AgriInvest program. These amendments will apply for the 2011 and subsequent taxation years.
The Mineral Exploration Tax Credit is an additional benefit, available to individuals who invest in flow-through shares, equal to 15% of specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors.
The Budget proposes to extend eligibility for this credit for one year to flow-through share agreements entered into on or before March 31, 2012. Under the existing “look-back” rule, funds raised in one calendar year with the benefit of the credit can be spent on eligible exploration up to the end of the following calendar year.
CCTB and GST/HST Credit
The Canada Child Tax Benefit (CCTB) is a non-taxable amount paid monthly to help eligible families with the cost of raising children under 18 years of age. The GST/HST Credit is a non-taxable amount paid quarterly that was introduced to compensate low- and modest-income families for the effects of replacing the Federal Sales Tax with the GST.
Entitlement to the CCTB and the GST/HST Credit is based on adjusted family net income. The Budget proposes to require an individual who receives the CCTB to notify the Minister of National Revenue of a marital status change before the end of the month following the month in which the change in status occurs (if the individual has not already done so for GST/HST Credit purposes). If the change in marital status results in a change to CCTB amounts, revised entitlements will be effective in the first month following the month of the change in status. This measure will apply to marital status changes that occur after June 2011.
To enhance administrative efficiency in the delivery of these benefits and simplify payments to individuals, the Budget proposes to increase the advance payment threshold for the CCTB from $10 to $20 per month and for the GST/HST Credit from $25 to $50 per quarter. This measure will apply to payments after June, 2011.
The Budget proposes to amend the Children’s Special Allowances Act and its regulations to provide for the payment of a special allowance to a child protection agency (as listed in section 3 of the Children’s Special Allowances Act) in respect of a child who is a former Crown ward when the child is placed in the custody of a legal guardian, tutor or similar individual and the agency provides financial assistance for the maintenance of that child.
This measure will apply to special allowances payable for months after December 2011.
The Federal Government notes that Employee Profit Sharing Plans (“EPSPs”) are an effective way for business owners to align the interests of their employees with those of the business, but says they are increasingly being used by some business owners to direct profits to family members in order to reduce or defer taxes and to avoid paying Canada Pension Plan contributions and Employment Insurance premiums.
The Federal Government says that it will review the existing tax rules for EPSPs to see if technical improvements are required and will undertake consultations to obtain the views of stakeholders before proceeding with any changes.