Tax measures in the latest federal budget will provide some relief to average Canadians.
The federal budget’s main emphasis was on stimulus and infrastructure spending, but there were some tax breaks for the average Canadian and for seniors.
“The measures were not that significant, but they will result in savings of a few hundred dollars for the average person,” said John Waters, manager of tax planning with BMO Nesbitt Burns.
“There are incentives for seniors, home buyers and Canadians who want to do home renovations, but the measures were certainly not as significant as they have been in the last few years.”
Perhaps the most publicized tax measure was the home renovation tax credit (HRTC), which is expected to provide $3 billion in stimulus and encourage investment in the housing industry.
The HRTC will apply to eligible home renovation expenditures for work performed or goods acquired after Jan. 27, 2009, and before Feb. 1, 2010, and can be claimed for renovations and enduring alterations to a dwelling or the land on which it sits.
The 15 per cent credit may be claimed on the portion of eligible expenditures exceeding $1,000 but not more than $10,000, resulting in a maximum credit of $1,350 ($9,000 x 15 per cent).
The credit can be claimed on eligible expenditures incurred on one or more of an individual’s eligible dwellings, which includes houses, cottages and condominium units owned for personal use.
Eligible expenditures include kitchen, bathroom or basement renovations, new carpet or hardwood floors, building an addition, deck, fence or retaining wall, a new furnace or water heater, painting the exterior or interior of a house, resurfacing a driveway or laying new sod.
Ineligible expenditures include the purchase of furniture, appliances and tools, carpet cleaning and maintenance contracts.
Two other home initiatives were also announced.
After Jan. 27, 2009, the amount that an eligible first-time home buyer will be able to withdraw tax-free from a registered retirement savings plan to help finance a home will increase to $25,000 from $20,000.
The budget also proposed a new non-refundable tax credit for first-time home buyers who acquire a qualifying home after Jan. 27, 2009. The credit is equal to $5,000 multiplied by the lowest personal income tax rate for the year (15 per cent for a maximum of $750 in 2009) and is claimable in the taxation year in which the home is acquired.
Seniors benefitted from a couple of new measures.
The age credit, which applies to Canadians 65 and over, will increase by $1,000 to $6,408. The income level at which this credit is fully phased out will increase to $75,032 from $68,365.
“One thing that did slip through the cracks but which will be very relevant to seniors and others is the ability to get benefit from a decline in RRSP and registered retirement income fund (RRIF) assets after death,” Waters said.
In the past, any loss in the value of investments in an RRSP or RRIF from the time of an annuitant’s death until distribution of the funds to the beneficiary was not recognized for tax purposes.
The budget proposes that when the final distribution of a deceased annuitant’s RRSP or RRIF occurs after 2008, the amount of the decrease in value can be carried back and deducted against the year-of-death income of the annuitant.
“With the declines in the market recently, this has been a common occurrence,” said Waters. “This is an important and long overdue change.”
The government also confirmed its intention to proceed with a previously announced, one-time 25 per cent reduction in the 2008 RRIF minimum payments, another benefit for seniors.
Three general tax incentives also were contained in the budget that should help many Canadians.
The federal basic personal amount (and spousal, common-law partner and eligible dependant amounts) will increase to $10,320 in 2009 from $9,000 in 2008, and the upper limit on the lowest federal personal income tax bracket, which taxes at 15 per cent, will increase to $40,726 from $37,885.
The upper limit on the second personal income tax bracket, which taxes income at 22 per cent, also will increase to $81,452 from $75,769.
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors. He can be contacted at firstname.lastname@example.org.