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Update on Budget Measures Now Passed Into Law

24/07/2013


On Wednesday, June 26, 2013, Bill 60 (Economic Action Plan 2013 Act, No. 1), which will implement certain tax measures in the 2013 budget along with other tax measures, received Royal Assent and became law. What follows is a high-level look at what exactly has passed and what measures are yet to be passed into law.

Personal income tax measures now enacted include:
  • Adoption Expense Tax Credit (AETC) – applying to adoptions finalized after 2012, the AETC is a 15% non-refundable tax credit that allows adoptive parents to claim eligible adoption expenses (to a maximum of $11,669 per child for 2013) relating to the completed adoption of a child under the age of 18;
  • First-Time Donor’s Super Credit (FDSC) – a temporary super credit will be available to first time charitable donors in the form of an additional 25% tax credit for qualifying donations on up to $1,000 of donations;
  • Safety deposit box rental deduction – fees paid to a financial institution for safety deposit box rental are no longer deductible for taxation years beginning on or after March 21, 2013;
  • Taxes in dispute and charitable donation tax shelters – for amounts assessed by the Canada Revenue Agency for taxation years 2013 and subsequent, the Agency is now able to collect 50% of the disputed tax, interest or penalty if the assessment resulted from a denied tax shelter deduction or charitable donation credit;
  • Dividend tax credit regarding non-eligible dividends – Bill 60 has brought into law an increase in the effective tax rate on non-eligible dividends by reducing the gross -up from 25% to 18% - and reducing the dividend tax credit from 13.33% to 11%. This change applies to non-eligible dividends paid after 2013 and has effectively increased the top marginal federal tax rate on dividends from approximately 19.6% to 21.2%.

Note that the proposed measures dealing with the increase to the lifetime capital gains exemption (LCGE) limit and indexing of the limit were not included in this latest round of approved budget measures. This proposal increases the LCGE limit to $800,000 for 2014 and later years from the current $750,000 and also proposes to have the LCGE indexed for taxation years after 2014.

In addition, the proposals dealing with Synthetic Dispositions, Character Conversion Transactions and elimination of the graduated rates for Trusts and Estates are not in the current measure passed into law. Finance has asked for feedback from the country’s tax professionals regarding their consultation paper on the graduated rates issue, so this measure is still under discussion and review.

Business income tax measures now enacted include:
  • Additional deduction for credit unions – the phasing out of the additional deduction for credit unions has been passed, meaning this preferential income tax deduction will be eliminated over five calendar years beginning in 2013;
  • Class 29 temporary increase in CCA rates - for certain manufacturing and processing equipment that would otherwise be included in Class 43, this measure has extended the acquisition date for eligible property to 2015;
  • Extension of the Class 29 election for qualifying equipment – for manufacturing and processing equipment that would otherwise be included in Class 43.1 or 43.2, an election is available to include this property in an accelerated CCA class. This election has been extended to property acquired before 2016;
  • Reserve for future services – the paragraph 20(1)(m) reserve in respect of amounts received for the purpose of funding future reclamation obligations (applying to amounts received after March 20, 2013) is no longer available.

Note that the business measures dealing with changes to Leveraged Insured Annuities, the 10/8 insurance arrangements, corporate loss trading, trust loss trading, thin capitalization and restricted farm losses were not included in this latest round of approved budget measures.

Our understanding is that finance does not intend to move forward with the consultation on taxation of corporate groups, but stay tuned for additional information on the remaining proposals not yet enacted.