Taxwiz Accounting and Consulting Inc. © 2009-2017
what's new
Bookmark and Share

2012 Federal Budget

Minister of Finance James Flaherty presented his 2012 federal budget on on 29 March 2012. This is the first budget after the Federal Conservative Party won majority government in 2011. This Budget focused on growth and long-term prosperity and aimed to return to a balanced budget by 2014-2015 without raising taxes. Tax-related highlights contained therein are as follows:

Penny

The federal government is eliminating the penny, which currently costs 1.6 cent to manufacture. If no pennies are available for a cash transaction, it will be rounded to the nearest five cent increment after GST/HST. The cent will continue to be the smallest unit of sale and non-cash transactions, such as spending done with credit cards, will continue to be settled to the nearest cent.

Existing pennies will continue to be legal tender for an indefinite period of time, but the Mint will stop producing new ones and distribution will cease in Fall 2012. On another note, the government will spend $9.6 million over three years to combat counterfeiting.

Public Service Cuts

The planned reduction in spending results in the elimination of 19,200 public service jobs over a 3-year period, 4.8% of total federal employment. The government expects 7,200 of those positions to be eliminated through attrition. 600 executives positions are expected to be slashed. Taxpayers will spend about $900 million on severance and benefits. By 2014-2015, the RCMP and CBC (Canada's national broadcaster) will also receive $195.2 million and $115 million cut per year respectively.

forthcoming Old Aage Security (OAS)

Due to demographic shifts, the pending retirement of the baby boomers will increase the total cost of the program from $38 billion in 2011 to $108 billion in 2030. To ensure substantiality, benefit eligibility age for receiving OAS and Guaranteed Income will be increased from 65 to 67. The change will take place starting on April 1, 2023 and will be fully implemented by January 2029. The government will also allow individuals to choose to defer payment for a maximum of five years starting in July 2013. If a person does defer, they will receive a larger adjusted pension than if they had begun collecting at 65.

MP Pensions

Changes to MP pensions are not outlined in the Budget. Finance Minister said the changes he wants to make, increasing pension contributions by the MPs and raising the age of eligibility will have to be discussed.

Employment Insurance (EI)

To improve efficiency of the EI program, the following changes will be made:

Duty-Free Limit Hike for Travellers

As of 1 June, duty free limits for returning residents will be raised as follows:


length of departure duty free limit
before 1 June 2012
duty free limit
after 1 June 2012
24 hours $50 $200
48 hours $400 $800

The 7-day limit on duty-free purchases has been eliminated.

Remarks

Since the Conservatives formed majority government, this is their first budget that needs no compromise with opposition parties. There is no new personal or corporate tax proposed. Trimming the size of federal bureaucracy is a correct measure to reduce national debt and to restore balanced budget. Despite this effort, budget deficit in 2011-12 and the projected deficit in 2012-13 will be $24.9 billion and $21.1 billion respectively.

In view of our aging population and the longer lifespan of Canadians, reforming the OAS is appropriate. However, it is disappointing to see no real progress in reform MP pension, which is too generous compared with most pension plans.

Other changes, such as the expansion of eligible medical expenses and the phasing out of the overseas employment tax credit, are relatively insignificant and will only affect a small number of taxpayers.

           

           

[This page was added on 4 April, 2012, last revised on 7 April 2012.]