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Federal Budget -> 2013 Budget

Federal 2013 Budget / Economic Action Plan - March 21, 2013

See the following on the 2013 Federal Budget, Department of Finance and Parliament websites:

bulletEconomic Action Plan 2013 - News Release
bulletTax Measures Supplementary Information
bulletNotice of Ways and Means Motion and Explanatory Notes April 22, 2013
bulletBill C-60, Economic Action Plan 2013 Act, No. 1 April 29, 2013
bulletNews release listing measures included in the Act
bulletBill C-60 received Royal Assent June 10, 2013
bulletProposed technical changes to transitional rules for Economic Action Plan 2013 character conversion measure July 11, 2013
bulletLegislative proposals re technical changes to income tax, excise duties and sales tax July 12, 2013
bulletLegislative proposals to modernize the life insurance policy exemption test August 23, 2013
bulletLegislative proposals and explanatory notes re income tax and excise tax September 13, 2013
bulletNotice of Ways and Means Motion and Explanatory Notes October 18, 2013
bulletBill C-4, Economic Action Plan 2013 Act, No. 2 October 22, 2013
bulletBill C-4 received Royal Assent December 12, 2013
bulletLegislative Proposals and Explanatory Notes re phase-out of federal labour-sponsored Venture Capital Corporations Tax Credit November 27, 2013
bulletLegislative Proposals and Explanatory Notes re GST/HST exemption for hospital parking for patients and visitors (not part of 2013 Budget) January 24, 2014.  Also includes proposed legislation re charity parking effective March 21, 2013.

 

The information below is only a part of the Budget.  All tax measures are subject to legislative approval.

Balanced Budgets

The Government indicates that it is on track to return to balanced budgets by 2015-2016.

Personal Income Tax

Non-eligible dividend tax credit (DTC)

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%.

First-time donor's super credit (FDSC)

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 filed.

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 years.

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 tax years.

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 measures.

 

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 rule.

Scientific research and experimental development (SRED) program

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 legislation.

 

For information on all tax measures, see Annex 2:  Tax Measures:  Supplementary Information.

 

Revised: January 24, 2014

 

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