Reduction of minimum withdrawals for RRIFs and
variable benefits under RPPs
It is proposed that the minimum annual withdrawal from a
Registered Retirement Income Fund (RRIF) would be reduced, on a one-time
basis, by 25% for 2008 withdrawals. For those taxpayers who have already
withdrawn more than the reduced minimum amount, the excess (up to the original
minimum amount) would be allowed as a contribution
to an RRSP or RRIF, and deducted on the 2008 tax return. The
contribution would be required to be made by the later of March 1, 2009, or 30
days after the legislation receives Royal Assent. Similar rules would apply to variable
benefit payments received under a money purchase Registered Pension Plan (RPP). If an in kind contribution
is made to the RRSP or RRIF, do not transfer investments which are in a loss
position, as the loss
will be disallowed.
Changes have been made to our RRIF
Withdrawal Calculators to reduce the 2008 minimum withdrawal by 25%.
Canada Revenue Agency (CRA) announced in a December
11, 2008 news release that the proposed changes can be administered by
financial institutions before the law is passed. However, if a taxpayer
withdraws the reduced amount and the proposed reduction is not passed into
law, the taxpayer may have to subsequently withdraw the remaining 25%.
March 11, 2008 - Notice
of Ways and Means motion tabled to implement most of the Budget 2008
measures.
March 14, 2008 - These measures are now included in Bill
C-50.
The Ways and Means motion also contains provisions to
"protect the fiscal framework from a private member's bill that risks
plunging the federal government back into deficit" (re Bill C-253
which proposed the deductibility of contributions to RESPs).
April 23, 2008 - Explanatory
notes relating to this draft legislation were made available.
The following three provisions are included in Budget
2008, and will apply to federally-regulated LIFs:
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.
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.
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:
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.
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.
Eligible expenses under the medical expense tax
credit will be expanded. See Medical
Expense Tax Credit on the CRA website.
The residency component of the northern
residents deduction will be increased by 10%.
GST/HST will no longer be payable on costs of
training to help individuals cope with disabilities or disorders, such
as autism.
The list of GST/HST-free medical and assistive
devices will be expanded, to include other items, such as service
dogs.
Tax Back Guarantee - $2 billion in annual interest
savings by 2009-10 will be dedicated to ongoing personal income tax
reductions.
Business tax changes
Record-keeping requirements for automobile expenses
and taxable benefits will be reduced.
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.
Scientific research and experimental tax
development program will be improved.
Cross-border tax-withholding and return-filing
rules will be streamlined.
Mineral exploration tax credit extended for an
additional year.
CCA rates to be increased for carbon dioxide
pipelines.
Accelerated CCA for clean- energy generation
equipment to be expanded to include additional applications involving
ground source heat pump and waste-to-energy systems.
GST/HST relief extended to land leased to situate
wind- or solar-power equipment for the generation of electricity.
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
proposed to take effect in the fall of 2009
Students from low and middle income families will
qualify based on clearly defined income thresholds.
Program will provide monthly grants of $250 for
low-income students and $100 for middle-income students.
The grant will be paid through all years of an
undergraduate or college program.
Canada Student Loans Program will be streamlined
and modernized. See the Canada
Student Loans Program information on the Department of Finance Budget
2008 website.
Canada Graduate Scholarship Program will provide
up to 500 annual scholarships worth $50,000 per year each for up to three
years. See the Canada
Graduate Scholarship Program information on the Department of Finance
Budget 2008 website.
The Canada Millennium Scholarship Program is
proposed to be terminated in 2009. Transitional grants will be
provided to ensure that students who receive Canada Millennium Scholarship
bursaries in 2008-09 will be unaffected by the wind-down of the
program. See the Students
information on the Department of Finance Budget 2008 website.