Finance Minister Jim Flaherty tabled his government’s third budget in Parliament today. The mainstream media has extensive coverage of budget highlights but if you are inclined to read the document yourself (available here), here are my notes of the interesting bits:
- Improved management of EI: The government is proposing the creation of a new crown corporation to ensure that the EI account is “managed on a truly break-even basis over time” (Page 71).
- Tax Free Savings Account (TFSA): The Conservatives proposed this idea in their platform for Election 2004 (the one in which Paul Martin won a minority). In Budget 2008, the government is planning to implement the idea. Starting in 2009, Canadian residents aged 18 years or older can contribute up to $5,000 annually to the TFSA. Contributions are not tax deductible but the growth within the plan and withdrawals are not taxed. Perhaps more importantly, income earned within a TFSA or withdrawals will not affect federal income-tested benefits and credits such as CCTB, GST rebate etc. (Pages 76-82).
- Increased Flexibility for Locked-in Pensions: The budget proposes to allow withdrawals of funds from life income funds under certain circumstances (Pages 82-83).
- Increasing the time limit of RESPs:: Currently, RESPs may remain open for 25 years from the date of inception. The budget proposes to increase the time limit to 35 years (Page 113).
- Increasing the GIS earned income exemption: The Guaranteed Income Supplement is reduced by 50 cents for every dollar of other income. The current exemption for employment income is $500. The budget proposes increasing the limit to $3,500 (Page 118).
- [Update] Rebate for Fuel-Efficient Cars Nixed: The $1,000 to $2,000 rebate announced with much fanfare in the previous budget will be available for vehicles purchased by the end of 2008 but is not being extended beyond the current model year. It is not clear if the “green levy” on gas-guzzling vehicles is also being terminated (Page 165).
- [Update] Taxes on Dividends are Increasing: There is a bit of bad news on the dividend front. Individuals will be paying more tax on dividends to compensate for the reduction in corporate taxes. Specifically, the eligible dividend gross-up will fall from the current 45% to 38% in 2012 and the dividend tax credit will fall from the current 19% to 15% in 2012. This works out to marginal dividend tax rate increasing by roughly 5% across all tax brackets (Page 290-291). (The Star is reporting that the rebate program is being killed but not the “green levy”. Why am I not surprised?)