Rob Carrick
It pays to have seniority.
In a budget that will take the federal government into the next election, seniors are the clear winners. They get more elbow room to manage withdrawals from their registered retirement income funds and a new tax credit to make their homes more accessible. They are also major beneficiaries of the new $10,000 annual contribution limit for tax-free savings accounts and some financial help for people who look after gravely ill relatives.
The budget has more on personal finance – help for postsecondary students to get loans, tougher language guiding the conduct of banks and a little relief for investors confused by requirements to report income from foreign investments. But a lot of effort has gone into addressing what seniors want and need.
What the government wants and needs are votes. To get them, it has targeted seniors and families with young children. Seniors have been served in the budget, and families were covered through the already announced family tax cut and improvements to the universal child-care benefit and Child Care Expenses Deduction. Ignored, aside from those student-loan measures, is the young adult cohort know as Generation Y, or millennials.
If any group is not benefiting from the thrumming economy the government describes in its budget documents, it is these young adults. They are struggling to break into a work force that too often will not commit to young workers beyond temporary contracts or unpaid internships, and they are increasingly being shut out of the housing market in some cities.
Rising postsecondary tuition costs are also a problem, but here the government did offer something. Starting in 2016-17, the budget would reduce the expected contribution from parents when considering a student's eligibility for the Canada Student Loans program. Another measure would eliminate income that students earn while in school from assessments on eligibility for loans.
TFSAs are actually quite handy for young people as a catch-all savings/investing vehicle for home down payments, travel, retirement and more. But a higher TFSA contribution limit will not mean much to Gen Y without better prospects for employment and financial self-sufficiency.
It is seniors who really benefit from a high TFSA limit and the government itself says so. It estimates that, based on current savings patterns, people ages 65 and older will receive about 60 per cent of the benefits in 2019 from boosting the TFSA limit to $10,000. Incidentally, that higher TFSA limit takes effect for the 2015 tax year and increases to the limit will no longer be indexed to inflation.
The new RRIF withdrawal rules are designed to help today's increasingly long-lived seniors conserve their retirement savings at a time when painfully low interest rates have hurt returns from safe investments such as bonds and guaranteed investment certificates. Starting in the 2015 tax year, the minimum withdrawal begins at 5.28 per cent in the year in which a senior is 71 on Jan. 1, down from 7.38 per cent. The required minimum will rise to 18.79 per cent at age 94 and remain capped at 20 per cent at age 95 and beyond. Previously, the 20-per-cent level was reached at 94. The government estimates that the lower withdrawal rate will cumulatively preserve close to 50 per cent more capital by age 90.
Note to seniors who end up withdrawing RRIF amounts in 2015 according to the old schedule: The government will allow you to recontribute the difference between what you withdrew and the new minimum by the end of February, 2016.
The new home-accessibility tax credit applies starting next year to both seniors and people with disabilities. Up to $1,500 in tax relief would be available for renovations such as wheelchair ramps, walk-in bathtubs, wheel-in showers and grab bars.
Seniors will be prime beneficiaries of two other budget measures, the first being an extension of compassionate-care benefits offered through employment insurance to six months from six weeks. This enhanced benefit would apply starting next year to people who must be away from work to care for family members who are gravely ill with a significant risk of death.
The other measure aims to simplify requirements for people with foreign investments in non-registered accounts to disclose their holdings in detail to the Canada Revenue Agency. A less onerous reporting process is being developed for people with less than $250,000 in foreign property.
One of the more universal features of the budget is a project to add clearer consumer-protection language to the Bank Act. For example, there will be requirements for expanded use of information boxes on the documentation of financial products to disclose basic information, and increased availability of a cooling-off period to allow people to back out of a financial purchase without penalties.