A Penny for your Thoughts… Not Anymore

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Budget Bulletin 2012

What you need to know…

Finance Minister James Flaherty tabled the 2012 federal budget on March 29, 2012. This is the first budget presented in the House of Commons since the Conservative party won a majority of the seats in Parliament in the last election. The following is a summary of the changes announced in the budget. Please note that these changes are still proposals until passed into law by the Federal Government.

Personal Tax Matters

Personal income tax rates
No changes announced, although tax brackets have been indexed by 2.8% to reflect inflation.

Medical expense tax credit
The budget proposes additions to the list of expenses eligible for the 15% non-refundable medical expense tax credit.

Group sickness or accident insurance plans
Budget proposes to include the amount of an employer’s contributions to a group sickness or accident insurance plan in an employee’s income for the year in which the contributions are made.

Registered disability savings plans
Changes to; plan holders, proportional repayments, maximum and minimum withdrawals, rollover of RESP investment income and new termination rules.

Employee profit sharing plans
Special tax to be payable by “specified” employees who do not deal at arm’s length with the employer.

Retirement compensation arrangements (RCAs)
The budget proposes new prohibited investment and advantage rules to directly prevent RCAs from engaging in non-arm’s length transactions.

Mineral exploration tax-credit for flow-through share investors
The budget extends this credit available for flow-through share arrangements entered into, on, or before March 31, 2013.

Overseas employment tax credit
The budget proposes to phase out the tax credit over a four-year period.

Life insurance policy exemption test
The budget proposes technical changes to update and simplify the test to determine if a life insurance policy is an exempt policy.

Salary of the Governor General
The budget proposes to end the tax exemption on the salary of the Governor General effective for 2013.

Other Proposals

Old Age Security and Guaranteed Income Supplement
Budget 2012 proposes to increase the age of OAS and GIS eligibility from 65 to 67.

The change to OAS/GIS eligibility will not affect anyone age 54 or older as of March 31, 2012; that is, those born on March 31, 1958 or earlier. Those born on or after February 1, 1962 will have an age of eligibility of 67. Those born between April 1, 1958 and January 31, 1962 will have an age of eligibility between 65 and 67.

Travellers’ duty and tax exemptions
Exemptions for travellers out of the country for 24 hours increases from $50 to $200, and for 48 hour stays out of country it increases from $400 to $800. The 7 day exemption no longer exists.

Charitable organizations
The budget proposes to modify the rules for registering certain foreign charitable organizations as qualified donees.

Tax shelters
Increased penalties imposed on promoters of charitable donation tax shelters.

Pooled Registered Pension Plans (PRPPs) and Review of National Securities Regulator
The government continues to work and promote these areas federally and provincially.

And finally…the elimination of the penny

As of fall 2012, the Royal Canadian Mint will no longer distribute pennies. The penny will retain its value indefinitely and can continue to be used in payments. However, as pennies are gradually withdrawn from circulation, price rounding on cash transactions will be required.