The first quarter of 2019 has come to a close and the Liberal government released their proposed Federal Budget. While last year’s budget was cautious in the face of NAFTA negotiations and competitive US corporate tax initiatives, this year’s proposal focuses on maintaining economic growth over the long term and announced strategic social initiatives for individual Canadians rather than corporations. Here we have highlighted some of the key proposals.
Help for Homeowners
The Home Buyers’ Plan allows first-time home buyers to withdraw a tax-free amount from their RRSP to help with the down-payment or other expenses The 2019 Budget proposes to increase the HBP withdrawal limit from $25,000 to $35,000 per individual. The repayment period will remain at 15 years, starting the second year after the withdrawal was made.
CMHC will also help first-time homebuyers by taking up to a 10% stake in newly constructed homes or 5% of an existing home. The incentive is subject to various conditions such as a household income of under $120,000 and a maximum value of homes that would be eligible. This is different from previous strategies that have offered loan-type programs as the government would instead share in the growth of equity. Many believe this will only drive home prices up further though that remains to be seen.
Student Loan Breaks for Postsecondary Students
The budget provides a major break on interest costs for Canada Student Loans and Canada Apprentice Loans, including a reduction on interest rates for both fixed and floating loan rates. Further relief is seen in a move to eliminate interest charges on student debt during the six-month grace period after graduation. The government estimates the average borrower will save around $2,000 in interest charges on their federal student loans from these changes.
Financial Aid for Retraining
The budget also includes several incentives to help Canadians looking to improve their job skills.
The Canada Training Credit will help workers between the ages of 25 and 65 pay for additional training costs. Each year, eligible Canadians would accumulate $250 in training credits, up to a lifetime limit of $5,000 which could be used to refund up to half the costs of taking a course or training program. This benefit is expected to launch in 2020.
A new Employment Insurance Training Support Benefit will also be set up to allow those who want additional job and skills training to take up to 4 weeks off every 4 years to do so with some living expenses covered.
Registered Disability Savings Plan Relief
Registered Disability Savings Plans (RDSPs) are used to help Canadian individuals with disabilities save for retirement and offers government grants and bonds, provided they qualify for the disability tax credit (DTC). Currently, RDSPs must be closed within a short period of time after the beneficiary is no longer eligible for DTC unless a medical practitioner certifies they will likely regain eligibility in the near future. Upon plan closure, all grants and bonds would have to be repaid to the government. The new rules would eliminate the short time limitations as well as the requirement for medical certification, a move to better protect the long-term savings of people with disabilities.
Additional Annuity Options for Registered Funds
Current tax rules allow certain registered plans (RRSPs, RRIFs, etc.) to purchase annuities to provide income in retirement which must begin by the end of the year the annuitant turns 71.
The Liberal government is changing the rules to permit Canadians to purchase an advanced life deferred annuity (ALDA) which would allow them to delay the commencement of payments until age 85. This is especially useful for those who are forced to withdraw the annual RRIF minimum starting at age 71 but don’t necessarily need to, thereby allowing them to keep more of their money in a tax-sheltered environment for even longer.
There will be restrictions as to how much can be sheltered within the ALDA and additional details will be released in the next draft amendment.
Auto-Enrolment for CPP & GIS Enhancement
While most Canadians start collecting CPP benefits at age 65, you can start as early as 60 or as late as 70 and payments will be adjusted accordingly. To ensure all Canadians receive the full value of their CPP benefits, the government will begin proactively enrolling CPP contributors who are age 70 or older and have not yet applied to receive their benefits.
The Guaranteed Income Supplement (GIS) provides a monthly non-taxable payment to OAS pension recipients who have a low income and are living in Canada. Currently, working seniors can only earn up to $3,500 in employment income before having their GIS benefits clawed back. The new enhancement would help low-income working seniors keep more of what they earn by raising the current full exemption amount to $5,000 with an additional partial exemption of $10,000 per recipient.
This year’s Federal Budget did not introduce any major changes but rather offered various incentives and social programs for individuals. With an upcoming October election, the Liberals seem to have played it safe and kept away from anything too controversial.
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