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2014 Federal Budget

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Federal Budget -> 2014 Budget

Federal 2014 Budget / Economic Action Plan - February 11, 2014

See the following on the 2014 Federal Budget, Department of Finance and Parliament websites:

bulletEconomic Action Plan 2014 - News Release
bulletTax Measures Supplementary Information
bulletNotice of Ways and Means Motion and Explanatory Notes March 24, 2014
bulletBill C-31 Economic Action Plan 2014 Act, No. 1
bulletBill C-31 Economic Action Plan 2014 Act, No. 1 - Dept of Finance information
bulletEconomic Action Plan 2014 Act, No. 1 - Royal Assent June 19, 2014
bulletDraft Legislation and Explanatory Notes August 29, 2014
bulletSmall Business Job Credit introduced September 11, 2014 (included in Bill C-43)
bulletSee Small Business Job Credit on EI rates page
bulletDoubling of Children's Fitness Tax Credit for 2014 October 9, 2014 (included in Bill C-43)
bulletSee Children's Fitness Tax Credit article
bulletNotice Ways and Means Motion re Children's Fitness Tax Credit changes
bulletNotice of Ways and Means Motion and Explanatory Notes October 10, 2014
bulletBill C-43 Economic Action Plan Act, No. 2 - October 23, 2014
bulletEconomic Action Plan 2014 Act, No. 2 - Royal Assent December 16, 2014

 

October 2014 Federal Tax Update - Family Tax Cut 2014, 2015 tax changes

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 Measures

Adoption Expense Tax Credit

The budget proposes to increase the non-refundable tax credit for adoption expenses for 2014 from $11,774 to $15,000 per child, indexed to inflation after 2014.

Medical Expense Tax Credit (METC)

The budget proposes that amounts paid for the design of an individualized therapy plan for an individual eligible for the Disability Tax Credit be eligible for the METC if the cost of the therapy itself would be eligible for the METC and certain conditions are met.  This measure will apply to expenses incurred in 2014 and later years.

Search and Rescue Volunteers Tax Credit (SRVTC)

The budget proposes to allow search and rescue volunteers to claim a 15% non-refundable tax credit based on an amount of $3,000, starting in 2014.  This equates to a tax reduction of $450.

bulletAn eligible individual will be a S&R volunteer who performs at least 200 hours of volunteer S&R services in a taxation year, consisting primarily of responding to and being on call for S&R and related emergencies, attending meetings held by the S&R organization, and participating in required training related to S&R.
bulletVolunteer S&R service hours will be ineligible if the individual also provides S&R services, otherwise than as a volunteer, to that organization.
bulletAn individual who performs both eligible volunteer firefighting services and eligible volunteer S&R services for a total of at least 200 hours in the year will be able to claim either the Volunteer Firefighters Tax Credit (VFTC) or the SRVTC.
bulletAn individual who claims the VFTC or the SRVTC will be ineligible for the existing tax exemption of up to $1,000 for honoraria paid by a government, municipality or public authority to an emergency services volunteer.
bulletWritten certification may be required.

Pension Transfer Limits

The pension transfer limit formula in the Income Tax Act determines the portion of a lump-sum commutation payment from a defined benefit RPP, received by a plan member who is leaving the RPP, that may be transferred to an RRSP on a tax-free basis.  Generally, in situations where a plan member's commutation payment is reduced due to plan underfunding, the transferable amount is based on that lower commutation payment, and the portion of a plan member's commutation payment that exceeds the transferable amount must be included in the taxpayer's income for the year in which it is received.

A special rule was introduced in 2011 that applied in limited circumstances regarding insolvent employers where the RPP is being wound up, that allowed the maximum transferable amount to be the same as if the RPP were fully funded.

The budget proposes to allow this special rule to apply in additional situations:

bulletwhere the plan is an RPP other than an IPP, the reduction in the estimated pension benefit that results in the reduced commutation payment is approved pursuant to the applicable pension benefits standards legislation; or
bulletwhere the plan is an IPP, the commutation payment to the plan member is the last payment made from the plan (i.e., the plan is being wound up).

The application of this rule must be approved by the Minister of National Revenue.  This measure will apply in respect of commutation payments made after 2013.

GST/HST Credit Administration

The budget proposes to eliminate the need for an individual to apply for their GST/HST Credit and to allow the CRA to automatically determine if an individual is eligible to receive the credit.

Tax on Split Income

The Income Tax Act contains rules which reduce the ability of a higher-income taxpayer to split taxable income inappropriately with lower-income individuals.  One of these rules is referred to as the "tax on split income".  The highest marginal tax rate (currently 29%) applies to "split income" paid or payable to a minor, which generally includes:
bullet

taxable dividends (and shareholder benefits) received directly, or indirectly through a partnership or trust, in respect of unlisted shares of Canadian and foreign corporations (other than shares of a mutual fund corporation);

bullet

capital gains from dispositions of those types of shares to persons who do not deal at arm's length with the minor; and

bullet

income from a partnership or trust that is derived from providing property or service to, or in support of, a business carried on by a person related to the minor or in which the related person participates.

The budget proposes that the definition "split income" in the Income Tax Act be modified to include income that is, directly or indirectly, paid or allocated to a minor from a trust or partnership, if:

bullet

the income is derived from a source that is a business or a rental property; and

bullet

a person related to the minor
bullet

is actively engaged on a regular basis in the activities of the trust or partnership to earn income from any business or rental property, or

bullet

has, in the case of a partnership, an interest in the partnership (whether held directly or through another partnership).

This measure will apply to the 2014 and subsequent taxation years.  It is included in the August 29, 2014 draft legislation.

Amateur Athlete Trusts

The budget proposes to allow income that is contributed to an amateur athlete trust to qualify as earned income for the purpose of determining the RRSP contribution limit of the trust's beneficiary.  This will apply to contributions made after 2013.  In addition, individuals who contributed to an amateur athlete trust before 2014 will be permitted to make an election to have income that was contributed to the trust in 2011, 2012 and 2013 also qualify as earned income.  Any additional RRSP room will be added to the individual's RRSP contribution room for 2014.  The election must be in writing and submitted to Canada Revenue Agency on or before March 2, 2015.  This proposal is included in the August 29, 2014 draft legislation.

Charities and Non-Profit Organizations

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 2014 proposes to generally proceed with the measures described in the consultation paper released on June 3, 2013.  This proposal is included in the August 29, 2014 draft legislation.

Specific proposals:

bullet

apply flat top-rate taxation to grandfathered inter vivos trusts, trusts created by will and certain estates.  Exceptions:
bullet

Graduated rates will apply for the first 36 months of an estate that arises on and as a consequence of an individual's death and that is a testamentary trust.

bullet

Graduated rates will continue to be provided in respect of testamentary trusts having as their beneficiaries individuals who are eligible for the federal Disability Tax Credit.

bullet

Testamentary trusts (other than estates for their first 36 months) and grandfathered inter vivos trusts will not benefit from special treatment under a number of related tax rules, in particular:
bullet

an exemption from the income tax instalment rules

bullet

an exemption from the requirement that trusts have a calendar year taxation year and fiscal periods that end in the calendar year in which the period began

bullet

the basic exemption in computing alternative minimum tax

bullet

preferential treatment under Part XII.2 of the Income Tax Act (tax on designated income of certain trusts)

bullet

classification as a personal trust without regard to the circumstances in which beneficial interests in the trust have been acquired

bullet

the ability to make investment tax credits available to a trust's beneficiaries, and

bullet

a number of tax administration rules that otherwise apply only to ordinary individuals.

Testamentary trusts that do not already have a calendar year taxation year will have a deemed taxation year-end on December 31, 2015 (or in the case of an estate for which that 36-month period ends after 2015, the day on which that period ends).

This measure will apply to the 2016 and subsequent taxation years.

Donations of Ecologically Sensitive Land

Budget 2014 proposes to extend to 10 years (from 5 years) the carry-forward period for donations of ecologically sensitive land, or easements, covenants and servitudes on such land.  This measure will apply to donations made on or after February 11, 2014.

Donations of Certified Cultural Property

The budget proposes to remove, for certified cultural property acquired as part of a tax shelter gifting arrangement, the exemption from the rule that deems the value of a gift to be no greater than its cost to the donor. Other donations of certified cultural property will not be affected by this measure.  This measure will apply to donations made on or after February 11, 2014.

Estate Donations

Where an individual makes a donation by will, the donation is treated for tax purposes as having been made immediately before death.  The treatment is the same where a qualified donee is designated as the beneficiary under an RRSP, RRIF, TFSA or life insurance policy.  In these circumstances, the Charitable Donations Tax Credit (CDTC) may be applied against only the individual's income tax otherwise payable.

For a donation made by an individual's estate, the CDTC may be applied against only the estate's income tax otherwise payable.

The budget proposes that, for the 2016 and subsequent taxation years, donations by will and designation donations will be deemed to have been made by the estate, at the time at which the property that is the subject of the donation is transferred to a qualified donee.  This proposal is included in the August 29, 2014 draft legislation.

Also, the available donation will be allowed to be allocated among any of:

bulletthe taxation year of the estate in which the donation is made;
bulletan earlier taxation year of the estate; or
bulletthe last 2 taxation years of the individual

The current limits that apply to determine the total donations that are creditable in a year will continue to apply.  A qualifying donation will be a donation effected by a transfer, within the first 36 months after the individual's death, of property to a qualified donee.

An estate will continue to be able to claim a CDTC in respect of other donations in the year in which the donation is made or in any of the 5 following years.

Extension of the Mineral Exploration Tax Credit for Flow-Through Share Investors

Budget 2014 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, 2015.

Business Income Tax Measures

Remittance Thresholds for Employer Source Deductions

The budget proposes to reduce the frequency of remittance of source deductions for employers, regarding amounts to be withheld after 2014, as follows:

bulletincrease the threshold level of average monthly withholdings at which employers are required to remit up to 2 times per month from $15,000 to $25,000; and
bulletincrease the threshold level of average monthly withholdings at which employers are required to remit up to 4 times per month from $50,000 to $100,000

Tax Incentives for Clean Energy Generation

Budget 2014 proposes to expand Class 43.2 to include water-current energy equipment and equipment used to gasify eligible waste fuel for use in a broader range of applications.  This measure will apply to property acquired on or after February 11, 2014, that has not been used or acquired for use before that date.  This measure is included in the August 29, 2014 draft legislation.

Consultation on Eligible Capital Property

The budget announces a public consultation on a proposal to repeal the existing eligible capital property (ECP regime, replace it with a new capital cost allowance (CCA) class available to businesses, and transfer taxpayers' existing cumulative eligible capital (CEC) pools to the new CCA class.  Detailed draft legislative proposals will be released for comment at an early opportunity.

Sales and Excise Tax Measures

bulletImproving the Application of the GST/HST to the Health Care Sector
bulletDesigning training for individuals with a disorder or disability
bulletAcupuncturists' and naturopathic doctors' services added to the list of health care practitioners whose professional services rendered to individuals are exempt from the GST/HST
bulletGST/HST Election for Closely Related Persons
bulletJoint Ventures
bulletRate of Excise Duty on Cigarettes - increased effective February 12, 2014
bulletExcise Duty Treatment of Tobacco Products in Duty Free Markets
bulletIndexing Tobacco Taxes to the Consumer Price Index

International Income Tax Measures

bulletCaptive Insurance
bulletOffshore Regulated Banks
bulletBack-to-Back Loans
bulletConsultation on Tax Planning by Multinational Enterprises
bulletConsultation on Treaty Shopping
bulletUpdate on Automatic Exchange of Information for Tax Purposes
bulletUpdate on Tax Treaties and Tax Information Exchange Agreements

Other Measures

bulletAboriginal Tax Policy
bulletCustoms Tariff Measures
bulletPreviously Announced Measures

 

Revised: February 16, 2016

 

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