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Introduction:

In the presentation of the 2014 Federal Budget to the House of Commons on February 11, the only good thing that was new was Mr. Flaherty’s shoes.  The budget is consistent with the tight-fisted approach to the economy being taken by Prime Minister Harper’s Conservative government.

From the taxation perspective, no news is perhaps good news.  There were no new taxes announced, no increases to existing taxes but also no reductions either. Tax rates for 2014 remain as they were for 2013 and the Finance Minister did not make any commitments for lower taxes in 2015. There were changes however which will have the effect of increasing tax revenues.

In advance of the Budget, Prime Minister Harper announced an allocation of over $2 billion to improve funding for First Nations education.  The program is to extend over an unspecified “several years”.  In addition, Employment Minister Jason Kenney proclaimed a plan to assist professionals coming to Canada to find work in their fields with funding of $800,000.  The last pre-budget “teaser” was news of the investment of $17 million in the James Webb Space Telescope (successor to the Hubble) announced by Industry Minister James Moore.

Budget Specifics:

Kiddie Tax:
Business income and rental income earned by individuals under the age of 18 directly or via a partnership where a person related to the minor is actively engaged in the business or rental activity or owns an interest in the partnership will be taxed at the top marginal rate;

This change will apply to 2014 and subsequent years;

Income splitting on investment income with prescribed rate loans are not affected.

 

Testamentary Trusts:
Previously announced changes in the taxation of testamentary trust will proceed.  Beginning in
2016, testamentary trusts will be allowed to use graduated tax rates for 36 months.  After that,
they will be required to adopt a calendar (December 31) year end and pay tax at the top marginal
rate.  There will be an exemption allowed for trusts that have beneficiaries who are disabled.

 

Donations made by Will
Under the current rules, donations made by a will are considered to be made by the deceased person.  As a result, they can be claimed in the final tax return for the year of death and the previous year.  The government has allowed unused donations to be claimed by a surviving spouse or common-law partner for up to five years.

The budget proposes to changes the rules whereby donations made by will, will be considered qualifying donations if made within 36 months of death. An election can be filed which will allow such a donation to be claimed by the deceased in the year of death or prior year or claimed by the estate for the year of donation or a prior year or carried forward for up to five years.

These provisions will begin in 2015 but details of the legislation have not been prepared.  This is a technical area to be considered when donations are a significant element of an estate plan.

Non-resident Trusts
Unfortunately, the government has eliminated the “Immigration trust” after over 40 years.  Previously, there was an exemption from tax for 60 months when a non-resident trust receives contributions from a resident of Canada. The exemption is now withdrawn starting in 2015. And if the contribution is made after the budget day, no exemption is available.

 

Eligible Capital Property (ECP)
ECP generally refers to intangible assets. The current capital cost allowance rules are complex and technical. The government proposes to replace the current system with a 5% rate class.

 

New T1135 Reporting for 2013 and subsequent years
The government has confirmed that the new – very onerous – filing requirements will proceed as previously announced much to the chagrin of the professional accounting community, investors and investment advisors.

This summary of the 2014 Federal Budget is provided for the clients and friends of Sloan Partners LLP. Copies may be requested by email to info@sloangroup.ca or downloaded here. The preceding information is not intended to replace professional advice based on your specific circumstances.

 

We are here to help

Your Sloan Partners adviser can help you determine the effect of the proposals in the 2014 Federal Budget on your personal and business financial affairs, and help you minimize your tax burden. Our Team of skilled professionals is available to meet with you at your convenience.

Partners
Allen Sloan, CPA, CA, BComm
Stan Swartz, CPA, CMA, CFP, CMC
Jerry Paskowitz, CPA, CA, CMC, BBA
Chris McFetridge, CPA, CA, BBA

Associate Partners
Dominic Kok, CPA, CA, BMath
Michael Spigelman, CPA, CA, BA
Irving Feldman, CPA, CA, QMed, BA
Greg McRae, CPA, CA, BA
Michael Cooper, CPA, CA, BA (Math)

Taxation Consulting Team
Michael Fromstein, CPA, CA, MBA, TEP
Charles Fu, CGA, MTax, BComm

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