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Mailing address:
P.O. Box 764
Winnipeg, MB R3C 2L4

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May 01, 2013
2013 federal budget: a triumph of obscurities

Federal Finance Minister Jim Flaherty unveiled the federal government’s 2013-14 budget on March 21.  While heavily focused on skills training and industrial development, the document contained many relatively obscure but potentially significant reforms that could affect selected individuals or plan sponsors.  Items of potential interest include the following:

• Increasing the Lifetime Capital Gains Exemption for small business owners, farmers and fishermen to $800,000.  Subsequent increases to the exemption will be indexed to inflation.

• The GST/HST exemption on publicly funded health-related homemaker services for the ill, elderly or disabled will be expanded to include personal care services such as bathing, feeding, assistance with dressing and taking medication.  Currently, the exemption only applies to homemaker services such as cleaning, laundering, meal preparation and child care.

• Reports, examinations, X-rays, laboratory tests and other services that are not performed for the protection, maintenance or restoration of an individual’s health will no longer be exempt from the GST/HST.  (For example, reports or examinations required for insurance purposes or to determine liability in a court will no longer be GST/HST-exempt.)

• The gross-up factor used to calculate the dividend tax credit from non-eligible corporate dividends will be reduced to 18 per cent from 25 per cent.  As well, the corresponding dividend tax credit will be reduced from two-thirds of the gross-up amount to 13/18ths.  

• Administrators of registered pension plans (RPPs) will be able to make refunds of member contributions in order to correct “reasonable errors” without first having to obtain approval from the Canada Revenue Agency.  This provision will likely be used in situations where plan administrators have miscalculated a member’s or employer’s contributions in a particular year without necessarily exceeding the RPP contribution limit.  This provision will become effective on January 1, 2014.

• The tax rates applied to estate trusts, testamentary trusts, and inter vivos, or living trusts, (a trust with a duration deemed at the trust’s creation and that can entail the distribution of assets to a beneficiary during or after the trustor’s lifetime) created prior to June 18, 1971,  may be harmonized with other trusts.  Currently, trusts created after June 18, 1971 are taxed at a flat rate of 29 per cent while those created before that date are taxed on a graduated scale applicable to individuals.  This can create tax advantages for the older trusts.

• Employment Insurance premiums will increase by five cents per $100 of insurable earnings each year from 2013-14 to 2015-16.  With projected improvements in employment, the rate will reduce in 2016-17 and 2017-18.  The projected EI rates are:   

Year Rate per $100 of insurable earnings
2013-14 $1.88
2014-15 $1.93
2015-16 $1.98
2016-17 $1.93
2017-18 $1.53

• The benefits provided by leveraged life annuities (insured annuities that are acquired with borrowed money that provide a guaranteed income to the investor until death, after which, the money invested in the annuity is returned as a tax-free death benefit) will be eliminated.  (These investments tend to be used by closely-held private corporations to compensate retiring partners or executives.)

• The development of a single financial consumer code to replace the current mix of legislation and regulations surrounding financial products.

• Improving financial literacy among seniors.

• Continued encouragement of provinces to introduce pooled registered pension plans (PRPPs.) To date, no province has successfully introduced PRPP legislation.

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