In the weeks leading up to the 2011 federal budget there was very little talk about the type of tax measures that were likely to be proposed. The silence was deafening. Now, the score is in: Taxpayers: 9, the Government: 12 - give or take. That is, there were more measures proposed in the 2011 Federal Budget to benefit the government by closing loopholes than measures designed to put more money into the pockets of Canadian taxpayers.
While I won't dwell on every change proposed in this budget, let me share some key highlights that are sure to impact many Canadian families and individuals.
1. Children's Arts Tax Credit. This credit should have been called the "Development" credit rather than the "Arts" credit because it will apply to much more than just artistic activities. Regardless, it's good news for families. This tax credit can be claimed on up to $500 of eligible expenses per child each year. It will put $75 of federal tax back in your pocket if you spend $500 for a child (the actual federal credit is 15 per cent of the eligible expenses). Eligible expenses include fees paid for children under 16 in an eligible program of artistic, cultural, recreational, or developmental activities. Eligible activities include things like music lessons, instruction in languages, dance, literary arts, visual arts, and even academic tutoring.
2. Family Caregiver Tax Credit. A new tax credit will be available beginning in 2012 for those caring for a dependent with a mental or physical infirmity. It applies to your total tax credits if you're already eligible to claim the spousal or common-law partner credit, child tax credit, eligible dependent credit, caregiver tax credit, or infirm dependent credit. If you qualify for one of these credits, you can claim an additional 15 per cent of $2,000 federally ($300 in added tax savings).
3. Medical Expense Tax Credit. Up until this budget, you had the ability to claim a tax credit for medical expenses incurred for yourself, your spouse or common-law partner, your children who are under 18, or certain other dependent relatives. When it comes to these "other dependent relatives" there has been a cap of $10,000 on the amount that could be claimed. This budget has removed the $10,000 limit for dependent relatives, and applies for 2011 and later tax years.
4. Exam fees. This budget proposes to amend the tuition tax credit to recognize fees paid to an educational institution, professional association, provincial ministry, or similar institution to take an exam that leads to a professional status recognized by a statute, or to be licensed or certified to practice a profession or trade in Canada. The total fees must be $100 or more to be eligible to claim a credit, and applies to exams taken in 2011 or later years. Be sure to keep your receipts for these exams.
5. Studying abroad. It used to be that a student could qualify to claim a tuition tax credit for studying outside of Canada only where the course lasted at least 13 consecutive weeks. Because many programs are shorter than this, the 2011 budget reduces the minimum course duration to three consecutive weeks. The 13-week requirement to be eligible to withdraw educational assistance payments from a registered education savings plan (RESP) has also been reduced to three weeks for many courses.
6. RESPs. The budget introduces changes that will allow assets inside RESPs to be transferred from one sibling's plan to another without tax penalties or triggering a repayment of the Canada Education Savings Grants (CESGs), provided that the beneficiary of the plan receiving the assets has not turned 21 by the time the plan was opened.
7. RRSPs. A new set of rules has been introduced in this budget to prevent taxpayers from entering tax schemes designed to enable investors to access the funds inside their Registered Retirement Savings plans without paying tax on withdrawals. These "RRSP-strip" schemes have evolved over time and the new rules are broad enough to stop virtually all of them. Further, it used to be the case that you could potentially hold a sizeable investment in private company shares in an RRSP. The rules have been tightened to limit that investment to less than 10 per cent of a private company (this is a complex area of the tax law - so speak to a tax pro for more).
8. Donation of flow-through shares. It was great while it lasted, but a "loophole" has just been closed. It has been the case that you could purchase flow-through shares, gain a tax deduction for virtually the entire amount invested, donate the shares to charity and receive a donation tax credit for the full value of the shares. To boot, you wouldn't have to pay tax on the resulting capital gain when the shares were "disposed of" by transferring them to the charity. The rules are now tightened so that the capital gain on the transfer of the shares to the charity will be taxable, unless the gain represents the value of the shares over and above what you paid for the shares. There's still tax relief in this strategy, but it's not as generous as before.