If there was ever a federal budget with absolutely no tax surprises, Monday’s budget redux was it, the contents being fully leaked by the government itself back in March, when the measures were originally proposed. Of course, that budget failed to pass because an election was called before a vote could be held on its contents.
While there had been some hope expressed among certain groups that a couple of punitive measures would be tweaked, if not altogether removed from Monday’s budget, this was not to be.
First, the measures curbing the tax advantages associated with the donation of flow through shares to registered charities have been fully maintained and in fact are retroactive to the original March 22, 2011. In other words, flow through shares, if purchased on or after this date, which are subsequently donated to charity will not be eligible for the normal tax-free capital gains treatment generally available to the donation of other publicly-traded securities or mutual funds to registered charities.
The budget document did, however, formalize the government’s plans to ask the House Standing Committee on Finance to study charitable donation incentives generally in its first session of Parliament.
The other budget change which was maintained concerned individual pension plans (IPPs), which are defined benefit Registered Pension Plans, set up for one or two related employees.
The IPP change that most irked several actuarial groups and small business owners was a change to past service pension contribution rules that could eliminate one of the primary advantages of establishing an IPP.
When a small business owner sets up an IPP, he or she often is given the option to make a contribution in respect of past service. To do so, however, the employee must either give up accumulated RRSP contribution room for earlier years or, to the extent that the employee has made RRSP contributions in those previous years, to withdraw a portion of RRSP assets to fund the IPP.
An employee who switches from RRSP savings to IPP savings later in their working career is able to make a past service contribution to the IPP which can be much greater than the amount the employee is required to reduce their RRSP assets or accumulated RRSP contribution room.
Under the change, which is effective for past service contributions made on or after March 22, 2011, the cost of funding past service under the terms of an IPP must be first satisfied by transfers from RRSP assets, or a reduction in the IPP member’s accumulated RRSP contribution room before new past service contributions will be permitted.
Much to some readers’ disappointment, there was no mention in the budget of two significant Tory campaign promises: the proposed doubling of the TFSA contribution limit to $10,000 from $5,000 nor the formal introduction of broad-based income splitting for couples with children under 18.
Both of these measures, however, are dependent on the government balancing its books, something it is now promising to do by 2014-2015, one year earlier than previously planned.