Minister of Finance James Flaherty presented his 2013 federal budget on 21 March 2013. This is the second budget after the Federal Conservative Party won majority government in 2011. Tax-related highlights contained therein are as follows:

First-Time Donor’s Super Credit (FDSC)

Starting in the 2013 taxation year, the Budget introduced a temporary non-refundable FDSC that will supplement the charitable donations tax credit (CDTC) for individuals. This new credit effectively adds 25% to the rates used in the calculation of the CDTC for up to $1,000 of monetary donations. As a result, a first-time donor will be allowed a 40% federal credit for donations of $200 or less, and a 54% federal credit for the portion of donations over $200 but not exceeding $1,000.

Adoption Expense Tax Credit

For adoptions that are finalized in 2013 and subsequent years, the budget proposed to extend the adoption period by modifying the time at which this period begins. Reference will be made to the time that an initial application is made for registration instead of the time that a particular child’s adoption file is opened. The revised adoption period will begin at the earlier of

• the time that an application is made for registration with a provincial or territorial ministry responsible for adoption or with an adoption agency licensed by a provincial or territorial government; and
• the time, if any, that an application related to the adoption is made to a Canadian court.

Dividend Tax Credit

For dividends paid after 2013, the budget proposes to adjust the gross-up factor for other than eligible dividends from 25% to 18% and the corresponding dividend tax credit from 2/3 of the gross-up amount to 13/18 (or 11.0169% of the grossed-up dividends).

The payer of the dividends received will apply the appropriate factors when preparing your income slips for dividends paid after 2013, such as the T5, Statement of Investment Income. Generally, these slips will be received early in 2015.

Lifetime Capital Gains Exemption

For the 2014 and subsequent tax years, the budget proposed to increase the lifetime capital gains exemption (LCGE) from $750,000 to $800,000. The budget also proposed to index the LCGE after 2014 for inflation. The new LCGE limit will apply for all individuals, even those who have previously used the LCGE.

Deduction for Safety Deposit Boxes

For taxation years beginning after 20 March 2013, the budget proposed that a deduction of an amount paid or payable in respect of the use of a safety deposit box of a financial institution will no longer be allowed for income tax purposes. The change applies to all taxpayers, including corporations.

Expansion and Extension of Hiring Credit for Small Business (HCSB) in 2013

The HCSB for 2013 extends the HCSB that was introduced for 2011 and 2012. The extended HCSB will be a credit of up to $1,000 based on the increase in an employer’s EI premiums paid for 2013 over those paid for 2012.

A small business whose total employer EI premiums paid for 2012 was $15,000 (increased from $10,000 used for 2011 and 2012) or less and whose total premiums increased in 2013 will be eligible for a credit. The amount of the credit will be the increase between the employer’s EI premiums in 2013, over those paid in 2012.

Remarks

Changes in tax related issues such as Lifetime Capital Gains Exemption and First-Time Donor’s Super Tax Credit are not significant as they affect a relatively small number of taxpayers.

Extension of the adoption period for adoption expense tax credit further enhances the tax incentive of adoption.

In addition to the foregoing, this Budget proposed changes to curb international tax evasion and tax fraud. They include new monetary and criminal sanctions on electronic suppression of sales from a point-of-sale system, paying informants of tax evasion a percentage of the federal taxes collected, making preparers who participate in the preparation of an Scientific Research and Experimental Development (SR&ED) tax incentive program claim, jointly and severally, or solidarily, liable for missing, incomplete or inaccurate information submitted.

Starting from 2013 taxation year, report of foreign asset holdings in T1135 requires more detailed information on each foreign property, including:

• the name of the specific foreign institution or other entity holding funds outside of Canada;
• the specific country to which the property relates; and
• the income generated from the property.

The Budget will further expand the power of the CRA to demand a third party (such as a financial intermediary) to provide information for the purpose of verifying statutory compliance of an unnamed person or persons by eliminating the requirement of ex parte application in court and give the third party an opportunity to make any representations at the hearing of the application for the authorization. This will expedite the process and put the CRA in a better position to combat tax evasion.