2007 Federal Budget Commentary

On March 19 2007, Finance Minister Jim Flaherty delivered the Conservative government’s second budget. The budget contained a variety of personal and business tax changes, mostly to the benefit of families and small business owners. We have noted what we believe to be some of the more important proposals below.

Capital gains exemption

The budget proposes to increase the lifetime capital gains exemption for qualified small business corporation shares and qualified farming and fishing property to $750,000 (from $500,000) for dispositions of property occurring on or after March 19, 2007. Transitional measures are proposed for 2007.

Child tax credit

The budget introduced a new non-refundable child tax credit for parents based on an amount of $2,000 for each child under age 18 at the end of the year, starting in 2007. The credit is worth about $310 per child.

Spousal and other amounts

Starting in 2007, the budget proposes to increase the amounts for spousal and wholly dependent relative credits (currently $7,581 for purposes of both credits) so that the amounts match the basic personal amount. The increase in the spousal amount for 2007 is worth up to $209.

Age limit for RRSPs and RPPs

The budget proposes to increase the age at which you must convert your Registered Retirement Savings Plans (RRSP) and Registered Pension Plans (RPP) to the end of the year you turn age 71 (from 69), starting in 2007. A RRIF annuitant who is age 71 or younger at the end of 2007 may convert the RRIF back to an RRSP, so long as the plan is converted back to a RRIF before the end of the year he or she turns 71.

Personal tax installments

Currently, you are required to pay personal tax installments if your estimated income tax payable for the year or your actual income tax payable for either of the two preceding years exceeds $2,000. The budget increases this threshold to $3,000 starting with the 2008 taxation year.

 

Trust T3 Information Returns

The budget indicates that draft regulations will be released in the near future to streamline the process for issuing T3 information slips. The rules will be designed to give taxpayers enough time to complete their tax returns while allowing commercial trusts, including income trusts, sufficient time to compute their income and prepare the slips.

Miscellaneous personal tax changes include:

• Enhanced contribution amounts and Canada Education Savings Grant limits under Registered Education Savings Plans and extended
  eligibility for payments out of RESPs for more part-time programs 
• A full tax exemption for scholarships and bursaries provided to attend elementary and secondary schools (currently, only $500 of such
  income is tax-exempt)
• New Registered Disability Savings Plans, to help parents save for long-term financial security of children with severe disabilities
• Extended eligibility for the public transit tax credit to include the costs of certain electronic payment cards and certain weekly public transit passes.

Temporary CCA rate increase for M&P assets

The budget proposes to temporarily increase the capital cost allowance (CCA) rate for manufacturing and processing (M&P) machinery and equipment currently included in Class 43 to a 50% straight-line rate (from 30%). The new rate will apply to eligible assets acquired on or after March 19, 2007 and before 2009.

CCA rate increase for computer equipment

The budget proposes to increase the CCA rate on computer equipment to 55% declining balance (from 45%) for assets acquired after March19, 2007 CCPC’s installment frequency – The budget proposes to allow small Canadian-controlled private corporations with taxable income at or below $400,000 in the current or preceding year to pay tax installments quarterly (instead of monthly), provided certain conditions are met. Quarterly installments will be determined under one of three alternative methods, for taxation years starting after
2007.

Corporate tax installment threshold

Currently, corporations are required to pay corporate tax installments if their income tax payable for the year or the preceding year exceeds $1,000. The budget also proposes to increase the threshold to $3,000 (from $1,000) for taxation years that begin after 2007.


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This commentary was provided by Jeremy Karkheck CA
Jeremy Karkheck CA - Professional Corporation

 
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This information is of a general nature and can’t be considered a substitute for specific advice. Professional tax advice should be sought before proceeding with any plan. Should you require further details on these or other matters please contact our office.