Friday, November 21, 2008

What is new in Canadian Income taxes for 2009?

Good morning,

I thought that I would pass along this article to you about taxes and what's happening in the marketplace in 2009 with income taxes.

There are some good ideas and suggestions below.

Have a nice weekend

Enjoy!
Mark

What is new in taxes for 2009?

Personal tax changes

Tax-free savings account (TFSA)

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Canadian residents aged 18 or over can contribute up to $5,000 per year to this account, beginning in 2009, with unused contribution room being carried forward.

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The $5,000 annual contribution limit will be indexed to inflation in $500 increments.

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Contributions are not tax deductible.

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Investment earnings and capital gains will accumulate tax-free.

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Withdrawals will not be subject to tax.

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Withdrawals will create contribution room for future savings.

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Income and withdrawals from a TFSA will not affect eligibility for federal income-tested benefits and credits (e.g. guaranteed income supplement, age amount tax credit).

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Contributions to a spouse's or common-law partner's TFSA will be allowed, subject to the contribution room of the spouse

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TFSA assets will be transferable to the spouse's TFSA upon death.

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Qualified investments will include all arm's-length RRSP qualified investments

It may be better to contribute the maximum to a TFSA before contributing to an RRSP, in order to use for saving for a house, education, or retirement. One of the advantages of the TFSA is that it will not be considered taxable income. If funds are withdrawn in retirement, this will not affect the Guaranteed Income Supplement or other income-tested benefits, and would not cause a claw back of Old Age Security, or a reduction of the age exemption.

Life income funds (LIF)

These three provisions were included in 2008 budget, and will apply to federally regulated LIFs:

1. Individuals 55 or over with LIF holdings of up to $22,450 will be able to wind up their accounts with the option to convert to a tax-deferred savings vehicle.

2. Individuals 55 or older will be entitled to a one-time conversion of up to 50% of LIF holdings into a tax-deferred savings vehicle with no maximum withdrawal limits.

3. All individuals facing financial hardship (low income, high disability or medical-related costs) will be able to unlock up to $22,450.

The threshold of $22,450 in #'s 1 and 3 will increase with the average industrial wage.

Other changes relating to personal income tax and GST/HST:

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Rewording of the Income Tax Act s. 118.2(2)(n) to ensure that the cost of non-prescription medications will not be considered eligible medical expenses after February 26, 2008. See our article on non-prescription medications.

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Registered Education Savings Plans - the time they remain open will be extended to 35 years from 25 years, and the contribution period will be increased by 10 years.

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Eligible expenses under the medical expense tax credit will be expanded.

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The residency component of the northern residents deduction will be increased by 10%.

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GST/HST will no longer be payable on costs of training to help individuals cope with disabilities or disorders, such as autism.

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The list of GST/HST-free medical and assistive devices will be expanded, to include other items, such as service dogs.

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Tax Back Guarantee - $2 billion in annual interest savings by 2009-10 will be dedicated to ongoing personal income tax reductions.

Business tax changes

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Record-keeping requirements for automobile expenses and taxable benefits will be reduced.

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Manufacturing and processing sector - accelerated capital cost allowance (CCA) treatment for investment in machinery and equipment will be extended for three years. The 50% straight-line accelerated CCA will be extended for one year, and the accelerated treatment will then be provided on a declining basis over a period of 2 years.

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Scientific research and experimental tax development program will be improved.

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Cross-border tax withholding and return-filing rules will be streamlined.

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Mineral exploration tax credit extended for an additional year.

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CCA rates to be increased for carbon dioxide pipelines.

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Accelerated CCA for clean- energy generation equipment to be expanded to include additional applications involving ground source heat pump and waste-to-energy systems.

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GST/HST relief extended to land leased to situate wind- or solar-power equipment for the generation of electricity.

Seniors

The Guaranteed Income Supplement (GIS) is an income-tested benefit, and is reduced by 50% of other income received, except for employment earnings. The exemption for employment earnings is 20% of earned income up to $2,500, providing a maximum exemption of $500. The budget proposes to increase this exemption, and fully exempt all employment earnings up to $3,500 per year.

Students

Canada Student Grant Program

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Students from low and middle income families will qualify based on clearly defined income thresholds.

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Program will provide monthly grants of $250 for low-income students and $100 for middle-income students.

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The grant will be paid through all years of an undergraduate or college program.


Hope this article helped you!

Mark

1 comment:

  1. It's nice to see such useful information Mark, I'm glad to see realtors like you who make an effort to inform their clients.

    ReplyDelete