2009 Federal Budget Highlights

January 27, 2009

Personal Income Tax Measures

Personal amounts and Income Tax Brackets

Budget 2009 proposes to increase the personal amount and spousal amount to $10,320 from $9,600 in 2008.
The upper limit of the first personal income tax bracket increase to $40,726 in 2009 from $37,885 in 2008.
The upper limit of the second personal income tax bracket increase to $81,452 in 2009 from $75,769 in 2008.

Canada Child Tax Benefit / National Child Benefit Supplement

Income levels on which income-testing of the base benefit under the CCTB and NCB are based will be increased. Specifically, for 2009 the income level at which the phase-out of the CCTB begins will increase to $40,726 and the income level at which the phase-out of the NCB begins will increase by $1,894 such that it is completely phased out by $40,726 for the majority of families.

Working Income Tax Benefit

Budget 2009 proposes to enhance the tax relief provided by the WITB by an additional $580 million for the 2009 and subsequent years, which is expected to double the total tax relief through the WITB.

Age Credit

Budget 2009 proposes to increase the amount on which the Age Credit is based by $1,000 to $6,408 effective January 1, 2009. The net income level at which the Age Credit begins to phase out will remain unchanged at $32,312 and will be fully phased out at $75,032 from $68,365 in 2008.

Temporary Home Renovation Tax Credit

Eligible individuals will be able to claim a 15% non-refundable tax credit for eligible expenditures made in respect of eligible dwellings.
The credit will apply to eligible expenditures in excess of $1,000 but not more than $10,000, resulting in a maximum credit of $1,350.
The credit will apply to expenditures made after January 27, 2009 and before February 1, 2010. The credit will, however, not be available in respect of expenditures for work performed or goods acquired in that period if the expenditure is made pursuant to an agreement entered into before January 28, 2009.

Home Buyers Plan

Budget 2009 proposes to increase the withdrawal limit from an RRSP under the Home Buyers Plan from $20,000 to $25,000. The increase in HBP withdrawal limit will apply to withdrawals made after January 27, 2009.

First Time Home Buyers’ Tax Credit

Budget 2009 proposes to introduce a non-refundable tax credit based on an amount of $5,000 for first time home buyers who acquire a qualifying home with a closing date after January 27, 2009.

The credit will be calculated by reference to the lowest personal income tax rate and is claimable for the taxation year in which the home is acquired.

RRSP/RRIF Losses after Death

The fair market value of investments held in an RRSP/RRIF at the time of death of the RRSP/RRIF annuitant is generally included in the income of the deceased for the year of death. A subsequent increase in the value of the RRSP/RRIF investments is generally included in the income of the beneficiaries of the RRSP/RRIF upon distribution.

There is no existing measure to recognize a decrease in the value of the RRSP//RRIF investments that occurs after the annuitant’s death and before they are distributed to beneficiaries.

Budget 2009 proposes to allow, upon the final distribution of property form a deceased annuitant’s RRSP/RRIF, the amount of post-death decreases in value of the RRSP/RRIF to be carried back and deducted against the year-of-death income inclusion. The amount that may e carried back will generally be calculated as the difference between the amount in respect of the RRSP/RRIF included in income and the total of all amounts paid out of the RRSP/RRIF after the annuitant’s death.

This measure will apply where final distributions from RRSP or RRIF accounts occur after 2008.

Business Income Tax Measures

Effective January 1, 2009, Small Business Limit subject to the reduced federal tax rate of 11% increased from $400,000 to $500,000 pro rated for non calendar years.
CCPC are eligible to earn ITC at an enhanced rate of 35% on up to $3M of SRED expenditures annually. The $3M expenditure is reduced as a CCPC’s taxable income for the previous year increase from 4$00,000 to $700,000. Where the previous year ends after 2008, the SRED expenditure limit of $3M will begin to reduce at $500,000 and will be fully eliminated at $800,000.
Accelerated Capital Cost Allowance
Manufacturing and Processing – The 2008 budget proposed to extend the accelerated CCA treatment for investments in the manufacturing and processing sector for three additional years. This included a one-year extension of 50% straight line accelerated CCA rate for eligible assets acquired after March 18, 2007 and before 2010 followed by accelerated CCA treatment on a declining basis for eligible assets acquired in 2010 and 2011. Budget 2009 proposes that in lieu of the accelerated CCA on a declining basis for eligible assets acquired in 2010 and 2011, the 50% straight line accelerated rate treatment will apply.
Computers purchased after January 27, 2009 and before February 2011 subject to a CCA rate of 100% and will not be subject to the half year rule.

Other measures

Time of acquisition of control of a corporation

Control of a corporation is generally deemed to have been acquired at the beginning of the day, instead of a particular time of that day. The deeming rule facilitates certain computations including valuation of inventory and other tax pools that are required to be calculated as the result of an acquisition of control.

The application of this deeming rule was interpreted by a 2006 Federal Court of Appeal decision, that in circumstances where control of a corporation was acquired by a purchaser as a result of a transfer of shares of the corporation to the purchaser from a vendor, control of the corporation was considered to have been relinquished by the vendor at the beginning of the day of the transfer, but the ownership of the shares was considered to have been retained by the vendor until the actual time of the transfer. This interpretation produced anomalies in relation to the vendor’s entitlement to claim certain tax benefits that depend on who has control of the corporation at the time of transfer.

Budget 2009 proposes that the deeming rule regarding the timing of an acquisition of a corporation be amended to ensure that it does not affect the status of a corporation as a CCPC at the time of the transaction that caused the change of control.

Administrative Measures

Electronic filing

Mandatory Electronic Filing - Corporations that have annual gross revenues in excess of $1M for a taxation year will generally be required to file their income tax returns for years ending after 2009 in electronic format. Some exceptions may apply.
The number of any particular type of income tax information return that can be filed by a taxpayer before the taxpayer is, under an existing income tax provision, required to file those information returns electronically, will be reduced to 50 from 500. This measure will most often apply in practice in respect of T4 information returns for employment income. This measure will apply in respect of information returns required to be filed after 2009.

Penalties

A new penalty will be introduced to ensure compliance with the new corporate income tax return electronic filing requirement. Penalty will apply for returns to be filed after 2011. Penalty will be $250 for 2011 returns, $500 for 2012 returns and $1,000 for returns that end after 2012.
Changes made to the penalty structure for filing of late or incorrect information returns.

Any questions concerning the above should be directed to Richard Rizzo, Senior Tax Manager.

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