FEDERAL BUDGET 2009

Finance Minister Jim Flaherty delivered his much anticipated 2009 federal budget on Tuesday, January 27th in Ottawa.  He is projecting a $64 billion federal deficit over the next two years.  The Budget is intended to strengthen the financial system and improve access to financing; build infrastructure; promote housing construction; and help Canadians stimulate spending.

This budget has some items that could affect your financial planning and present additional opportunities.  In case you haven't had a chance to review the media coverage, we thought you may appreciate a quick overview:

Personal tax brackets

The two lowest personal income tax brackets have been increase by approximately 4.87% for 2009 and the basic personal amount, the spousal and common-law partner amount and the eligible dependant amount are all increased to $10,320 for 2009 (the 2009 pre-budget amount was $10,100).

• A single Canadian earning $80,000 will save about $259 in 2009 with these proposed changes.

• The increased amounts and bracket thresholds will be indexed to account for inflation for 2010 and subsequent years.

Age Credit

The age credit (for Canadians 65 years or older) has been increased by $1,000 to $6,408, effective January 1, 2009, and will be indexed thereafter.

• This will help eligible low and middle income seniors by providing up to $150 of additional federal tax relief each year,

• For 2009, this income tested credit begins to be phased out at $32,312 (this remains unchanged) and will be completely eroded at $75,032 (increases from $68,365).

Home Renovation Tax Credit

The budget introduces a new home renovation tax credit which is a temporary non-refundable 15% tax credit.  This is to encourage Canadians to invest in improvements to their homes.  This credit allows home owners to claim for eligible expenditures over $1,000 but not exceeding $10,000 ( a maximum of $9,000).

• The maximum credit is $1,350 ($9,000 x 15%) and will only apply for the 2009 taxation year.

• Work must be performed or goods must be acquired after January 27, 2009 and before February 1, 2010 but if the expenditures are made under an agreement in place on or before January 27,2009, they are not eligible for the credit,

Home Buyers Plan Withdrawal

The home buyers plan withdrawal limit (for first-time home buyers) has been increased to $25,000 from $20,000 for the 2009 and subsequent taxation years for all withdrawals made after January 27, 2009.

First-time Home Buyers Tax Credit

Another new initiative is the first-time home buyers' tax credit, which is a non-refundable 15% tax credit based on an amount of $5,000 for first-time home buyers who acquire a qualifying home and the closing date is after January 27, 2009.   This is designed to help offset the costs involved in the purchase of a home for first-timers.

• The $750 tax credit ($5,000 x 15%) may be claimed for the taxation year in which the home is acquired.

RRIF Minimums Reduced For 2008

There will be a one-time 25% reduction in the mandatory withdrawals of RRIFs for the 2008 taxation year. 

• This means that RRIF annuitants may contribute either back into their RRIF or into an RRSP up to 25% of their 2008 annual minimum. 

• The contribution must be done by March 2^nd, 2009.

RRSP/RRIF Losses After an Annuitant’s Death

Currently, the fair market value of investments in RRSPs or RRIFs at the time of an annuitant’s death is generally included in the deceased's income in the year of death.  Any increase in the value of RRSP/RRIF investments after the annuitant's death is included in the income of the RRSP's beneficiaries on distribution, but losses cannot be deducted.   The proposed new rules would allow the amount of post-death decreases in value of the RRSP or RRIF to be carried back and deducted against the year-of death RRSP/RRIF income inclusion of the annuitant.

• The measure will apply in respect of deceased annuitants RRSPs or RRIFs where the final distribution from the RRSP or RRIF occurs after 2008.

SMALL BUSINESS OWNERS

Income Eligible for the Small Business Tax Rate

The budget calls for an increase in the amount of small business income eligible for a reduced 11% federal tax rate from the current $400,000 to $500,000.

·        This increase is retroactive to January 1, 2009.

CCA (Capital Cost Allowance) on Computer Equipment

The budget provides a temporary 100% CCA rate for eligible computer equipment and software purchases.   The 100% rate will also not be subject to the half-year rule.

·        Business owners will be able to deduct the full cost of computer and software purchases in the year of purchase.

·        Purchases must be made between January 27, 2009 and February 2011.