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2010 Federal Budget©

Minister of Finance James Flaherty presented his 2010 federal budget on March 4, 2010. Tax-related highlights contained therein are as follows:

Personal Tax Changes

  1. Effective in July 2011, two eligible individuals (instead of only 1 prior) can share Canada Child Tax Benefit (CTB) and the Universal Child Care Benefit (UCCB), the child component of the GST/HST credit payable each quarter, in respect of a child, if the recipients would be eligible to receive amounts under the existing shared eligibility policy of the CRA. This new policy applies when a child lives more or less equally with two individuals who live separately.
  2. Effective 2010, a single parent will have the option of including the UCCB amounts in the parentís income or the income of the dependent. This change is to alleviate the inequity of a single parent potentially paying more tax on UCCB received than a couple with one income earner. Previously, the UCCB must be included in the income of the lower income spouse or common-law partner in two-parent families, while in a single parent family the UCCB is generally included in the single parentís income.
  3. It is proposed that medical expenses incurred after March 4, 2010 for purely cosmetic procedures be ineligible for the Medical Expense Tax Credit.
  4. The popular Home Renovation Tax Credit has been scrapped. Unused amount in 2009 cannot be carried forward or backward.
  5. Under certain conditions, an employee of a publicly-traded company who acquires shares under a stock option may elect to defer the recognition of the employment benefit until the disposition of the optioned securities. It is proposed that this deferral election be repealed for stock options exercised after 4:00 p.m. EST on March 4, 2010. It is also proposed that taxpayers who have previously elected to defer the taxation of their optioned securities and who have experienced financial difficulties as a result of the decline in the value of optioned securities, will be eligible for special elective tax relief for dispositions occurring before 2015. Taking into account the tax relief resulting from the use of capital losses on optioned securities being applied against capital gains from other sources, this special election will generally ensure that the tax liability on a deferred stock option will not exceed the proceeds of disposition of the optioned securities. The special election is also available for securities disposed of before 2010.
  6. Effective for the 2010, scholarship exemption for post-secondary scholarships, fellowships, and bursaries will be narrowed for post secondary programs that consist primarily of research. Education Tax Credit and the scholarship exemption will be available only if it leads to a college diploma, bachelor, masters, doctoral, or equivalent degree. Post-doctoral fellowships will therefore be taxable. Furthermore, if amounts are provided in connection with part-time programs, the scholarship exemption will generally be limited to the amount of tuition paid for the program plus the costs of program related materials.

Business Tax Changes

  1. Accelerated capital cost allowance (CCA) is provided for the following eligible business asset classes:
    • declining-balance CCA rates for satellite set-top boxes used to decode digital television signals and cable set-top boxes will be raised from 20% and 30% to 40% (for both);
    • expand Class 43.2 (specified clean energy generation and conservation equipment Ė declining balance CCA rate of 50%) to include: heat recovery equipment used in a broader range of applications; and distribution equipment used in district energy systems that rely primarily on ground source heat pumps, active solar systems or heat recovery equipment.
  2. To curb using foreign tax credit to shelter Canadian tax payable in respect of interest income on indirect loans made to foreign corporations, new anti-avoidance measures are proposed to deny claims for foreign tax credits, foreign accrual tax and underlying foreign tax deductions in certain scenario. This would put the Canadian corporation in the same tax position as if it had made a simple loan to a foreign corporation.
  3. The definition of taxable Canadian property will be amended to exclude shares of corporations and certain other interests that do not derive their value principally from real or immovable property situated in Canada, Canadian resource property or timber resource property (subject to the 60 month rule).

Remarks

Despite improvement in global economic outlook in the last few months, the federal government is still running a $53.8 billion deficit and a debt to GDP ratio of about 34% (well above the governmentís own target of 25% in the current fiscal year.

About 50% of Canadaís revenue is generated by personal income tax, unemployment, which remains higher than short-term historical averages, is the most significant challenge to the revenue targets.

Corporate taxpayers are pleased to see that the scheduled corporate tax reductions over the next two years has not been deferred as a means to generate more tax revenue to cover the deficit.

Generally speaking, most tax changes in this budget only affect a small number of taxpayers and are not earthshaking in nature.

           

           

           

[This page was added on March 9, 2009, last revised on March 19, 2010.]