Seniors on fixed income who cannot take advantage of pension-income splitting could always rely on at least one deduction: their safety deposit box fees. No longer. Effective in 2014, the new federal budget will eliminate the deduction for deposit box fees even when the box is being used to store investment-related items, such as Canada Savings Bond certificates. According to the budget documents, the importance of retaining paper copies of documents has declined as electronic records become the norm and taxpayer safety deposit boxes are more likely to be used for storing valuables. As a result, it is no longer a legitimate tax deduction. Seniors will still have plenty of tax credits available to them, such as the age amount and the pension income amount, but the section of their tax return for listing deductions will most likely be blank.
And that change is emblematic of the 2014 budget, with its focus on closing loopholes. With lower corporate tax rates in recent years, the dividend tax credit mechanism for small businesses was beginning to over-compensate owners for income taxes paid at the corporate level. As a result, the gross-up will be reduced from 25 per cent to 18 per cent and the tax credit rate will be reduced from 131/3 per cent to 11 per cent. For taxpayers at the highest federal marginal rate, this means the tax payable on $1,000 of dividend income will increase from $196 to $212.
However, there is also some good news for small-business owners. Effective in 2014, the lifetime capital gains exemption will be increased from $750,000 to $800,000, and for taxation years after 2014 it will be indexed to inflation. The new limits will apply even to taxpayers who have previously used up their $750,000 exemption.
The biggest good-news item, though, is the first-time charitable donor’s super credit. This was placed front and centre in the budget documents, where no one can miss it. It provides an additional 25 per cent credit on cash donations of up to $1,000. The credit on donations less than $200 will therefore be increased to 40 per cent and the credit for donations between $200 and $1,000 will be increased to 54 per cent. A first-time donor who made the maximum donation of $1,000 would therefore receive a total federal credit of $512, calculated as:
$200 x 40%: $ 80
$800 x 54%: $432
Total: $512
When provincial credits are factored in, the savings will be even greater. Albertans, for example, also receive a provincial credit of 10 per cent on donations under $200 and 21 per cent on donations in excess of this amount. For first-time donors, their total federal and provincial credits on a donation of $1,000 will therefore be $700.
You will be considered a first-time donor if neither you nor your spouse or common-law partner has claimed the charitable donation tax credit in any taxation year after 2007. Although you can split the credit with your spouse or common-law partner, the total amount claimed cannot exceed the amount you would be allowed if only one of you were to claim.
Cracking down on international tax avoidance is also a primary focus of this year’s budget. Beginning in 2015, financial institutions will be required to report international electronic funds transfers (EFTs) of $10,000 or more to the Canada Revenue Agency. And the CRA will now pay rewards to individuals with knowledge of major international tax non-compliance.
The rules for taxpayers subject to the foreign property reporting requirements are also being tightened. The CRA will be provided with an additional three years in which they can reassess your return (for a total of six years) if you failed to report foreign income on your return and Form T1135 was not filed on time. And if you checked the box on the T1 stating that you owned foreign property costing more than $100,000, you will now be reminded on your Notice of Assessment of the need to file the T1135.
Overall, then, this budget offers a few goodies but is mainly focused on filling in the cracks people might have attempted to slip through at tax time.