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This is the biggest single source of additional tax revenue
for the federal government in the budget, saving the government $2.34
billion over the next 5 years.
The budget indicates that the current dividend tax
credit and gross-up factor for these dividends overcompensate individuals
for income taxes presumed to have been paid at the corporate tax level on
active business income. For this reason, for dividends paid after
2013, the gross-up factor will be reduced from 25% to 18%, and the tax
credit will be revised from 2/3 of the gross-up amount to 13/18 of the
gross-up amount. This reduces the DTC rate from 13 1/3% of the
grossed-up dividend to 11%.
The budget proposes to introduce a temporary First-time
Donor's Super Credit, which would be available to an individual if neither
the individual nor the individual's spouse or common-law partner has
claimed the Charitable Donation Tax Credit (CDTC) or the FDSC in any
taxation year after 2007. For the purpose of this determination, an
individual's spouse or common-law partner will be the individual's spouse
or common-law partner on December 31 of the taxation year in respect of
which the FDSC is claimed.
The FDSC will provide an additional 25% tax credit for
a first-time donor on up to $1,000 of donations. This will provide
the first-time donor with a 40% federal tax credit for donations of $200
or less, and a 54% federal credit for donations over $200 but not
exceeding $1,000. Only donations of money will qualify for the FDSC.
First-time donor couples may share the FDSC in a tax year, but the total
amount claimed by an individual and spouse cannot exceed the amount that
would be allowed if only one were to claim the FDSC.
The FDSC will be available for donations made on or
after March 21, 2013, and may be claimed only once in the 2013 tax year,
or a subsequent tax year before 2018.
Lifetime capital gains exemption
The current $750,000 lifetime
capital gains exemption (LCGE) for qualified property will be
increased to $800,000, effective for the 2014 taxation year. The
LCGE will then be indexed to inflation for tax years after 2014. The
new limit will be applicable to qualified property of all individuals,
even if the LCGE has been previously claimed.
Deduction for safety deposit boxes
The budget proposes to make the cost of renting a safety
deposit box from a financial institution non-deductible for income tax
purposes. This will be effective for tax years beginning on or after
March 21, 2013.
This deduction is being removed because as electronic
records become the norm, the use of safety deposit boxes is much more
likely to be for personal purposes, rather than for income-producing
purposes. This is a deduction that probably has been claimed in
error by many people, as the box was not used to store and protect papers
relating to an investment portfolio.
Extended reassessment period for tax
shelters and reportable transactions
Canada Revenue Agency (CRA) is normally required to
audit and reassess a taxpayer's tax liability within 3 years. Budget
2013 proposes to extend this period in respect of a participant in a tax
shelter or reportable transaction, where an information return that is
required for the tax shelter or reportable transaction is not filed on
time. In this circumstance, the normal reassessment period will be
extended to 3 years after the date that the relevant information return is
Taxes in dispute and charitable
donation tax shelters
Budget 2013 proposes to modify the prohibition on the
CRA from taking collection action in tax shelter donation cases where the
taxpayer has objected to the assessment. The CRA will be permitted,
pending the ultimate determination of the taxpayer's liability, to collect
50% of the disputed tax, interest or penalties. This measure will
apply in respect of amounts assessed for the 2013 and subsequent tax
Extension of the mineral exploration
tax credit for flow-through share investors
Budget 2013 proposes to extend eligibility for the
Mineral Exploration Tax Credit for one year, to flow-through share
agreements entered into on or before March 31, 2014.
Labour-sponsored venture capital
corporations (LSVCC) tax credit
Budget 2013 proposes to phase out the federal LSVCC tax
credit. The credit will remain at 15% for tax years ending before
2015, and will be reduced to 10% for the 2015 tax year and 5% for the 2016
tax year. The credit will be eliminated for the 2017 and subsequent
Consultation on graduated rate taxation
of trusts and estates
Certain estates and trusts, including testamentary
trusts created by will, compute federal income tax on taxable income using
the graduated tax rates applicable to individuals.
Budget 2013 announces the Government's intention to
consult on possible measures to eliminate the tax benefits that arise from
taxing at graduated rates grandfathered inter vivos trusts, trusts
created by will, and estates (after a reasonable period of estate
administration). A consultation paper will be publicly released to
provide stakeholders with an opportunity to comment on those possible
Business Income Tax Measures
Manufacturing and processing machinery and
equipment: accelerated capital cost allowance (CCA)
The budget proposes to extend the current accelerated cost allowance by
an additional 2 years. Manufacturing and processing machinery and
equipment that would otherwise be included in Class 43 and that is
acquired in 2014 or 2015 will qualify for the 50% straight-line CCA
rate. Eligible assets acquired in 2016 and later years will be
included in Class 43, which has the regular 30% declining-balance CCA
rate. Both of these classes are subject to the half-year
Scientific research and experimental development (SRED)
Budget 2013 proposes to require more detailed information to be
provided on SRED program claim forms about SRED program tax preparers and
billing arrangements. In order to support the requirement to provide
more detailed information, the budget proposes that a new penalty of
$1,000 be imposed in respect of each SRED program claim for which the
information about SRED program tax preparers and billing arrangements is
missing, incomplete or inaccurate.
This measure will apply to SRED program claims filed on or after the
later of January 1, 2014 and the day of Royal Assent to the enacting