Five new ways to save on your taxes in the Federal Budget
While today’s 2019 federal budget contained no tax rate cuts, the government did provide a variety of tax goodies and incentives. Your ability to take advantage of these changes, however, will depend on your particular circumstances. Here are some of the positive tax changes that may benefit you in 2019 and future years.
Canada Training Credit
Thinking of going back to school and retraining? Then the government’s newest boutique tax credit may be for you. The “Canada Training Credit” (“CTC”) is aimed at providing financial support to help cover up to half of eligible tuition and fees associated with your training. Starting this year, you’ll start to accumulate $250 annually in a notional government tracking account which can be accessed in future years to help cover the costs of training.
In order to accumulate the $250 for a particular tax year, you must file a tax return, be between 25 and 65 years old, be a resident of Canada and have (self-) employment income of $10,000 or more in the year. To ensure it’s not available for higher-income Canadians (who presumably can afford their own tuition), your net income must be less than the top of the third tax bracket ($147,667 in 2019) to qualify.
Each year, your notional account balance will be tracked by the CRA. The amount of CTC that can be claimed in a particular tax year is equal to the lesser of 50 per cent of your eligible tuition and fees and your notional account balance. The amount claimed will offset, dollar for dollar, tax otherwise payable or will be refunded if the amount exceeds your tax payable. You can start claiming the CTC in 2020.
Home Buyers’ Plan
If you’re a first time home buyer, it may be challenging to gather the funds for that initial down payment. Under the federal home buyers’ plan (HBP), first-time home buyers can withdraw up to $25,000 from their RRSP to purchase or build a home without having to pay tax on the withdrawal. Amounts withdrawn under the HBP must be repaid to an RRSP over a 15-year period beginning the second year following the year in which the withdrawal was made.
The budget announced an increase in the HBP withdrawal limit to $35,000 from $25,000 “to provide first-time home buyers with greater access to their RRSPs to purchase or build a home.” As a result of this change, a couple will potentially be able to withdraw up to $70,000 from their RRSPs to purchase a first home, starting March 20.
Auto-enrolment for CPP
While the standard age to start collecting your CPP benefits is age 65, you can begin collecting them as early as age 60 or as late as age 70. Indeed, some Canadians choose to defer receiving CPP until age 70, resulting in a permanent increase to their monthly CPP amount.
Each year, a small number of Canadians miss out on receiving their CPP benefit because they applied for the benefit late, or, in some cases, forgot to apply at all. To ensure that all Canadians receive the full value of the CPP benefits to which they contributed, the government announced that starting next year, it would proactively enroll CPP contributors who are age 70 or older and who had not yet applied to receive their CPP benefits.
Donations of cultural property
Thinking of donating that extra Picasso to your local museum? Under current tax rules designed to encourage Canadians to donate cultural property of “outstanding significance” and “national importance” to Canadian museums and public art galleries, the government provides special tax incentives to encourage donations of cultural property to these institutions “to ensure that such property remains in Canada for the benefit of Canadians.”
The enhanced tax incentives include the donation tax credit as well as an exemption from capital gains tax arising from the gift, which is considered a deemed disposition for tax purposes.
Under the current law, to qualify for the tax-free gains treatment, the donated property must be of “outstanding significance” by reason of its close association with Canadian history or national life, its aesthetic qualities or its value in the study of the arts or sciences. In addition, it must be of “national importance” to such a degree that “its loss to Canada would significantly diminish the national heritage.”
A recent court decision involving the Heffel Gallery and the export of an 1892 oil painting by Gustave Caillebotte interpreted the “national importance” test as requiring that a cultural property have a direct connection specifically with Canada’s cultural heritage, as opposed to being solely of “outstanding significance” but of foreign origin.
To address this concern, for donations made today and going forward, the law will be changed to remove the requirement that property be of “national importance” in order to qualify for the enhanced tax incentives.
Tax credit for digital subscriptions
Finally, if you get your news online (and actually pay for it!), the budget has proposed a temporary, non-refundable 15-per-cent tax credit for eligible digital news subscriptions. This will allow you to claim up to $500 in costs paid towards eligible digital subscriptions in a taxation year, for a maximum tax credit of $75 annually. In the case of combined digital and newsprint subscriptions, you’ll be limited to claiming the cost of a stand-alone digital subscription. This temporary credit starts in 2020 and is scheduled to expire in 2024.
Jamie Golombek, CPA, CA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Financial Planning & Advice Group in Toronto.