Yesterday was Federal Budget Day for the Prime Minister and his Finance Minister, Bill Morneau. As expected, it targets the middle class and even names it so, calling this 460 page cure for insomnia, “Investing in the Middle Class.” Let’s look at a few of the highlights.
First of all, there are no major tax increases or cuts, but there are a number of incentives and credits that are becoming available, in addition to the development of a couple of new programs. Here are the main ones in no particular order:
Home Buyer Incentive
This is probably the most noteworthy of all the budget prizes, as mortgage stress tests around the country have made it more difficult for young people to purchase a home. There’s two parts to this.
First of all, historically, a first time home buyer has been able to borrow $25,000 from their RRSP to make a down payment on their first home. It’s called the First-Time Home Buyers’ Plan. The budget now raises that amount to $35,000.For a young married couple, that amounts to $70,000 that they can take from their RRSP and put towards their first home. Note: they do have to put it back over time. – Please speak to us about this if you’re interested in learning more.
The second component is a First Time Home Buyer Incentive program that the government is developing. You’ll still need to come up with your down payment; however, if you do, you may apply for between 5% (for an existing home) and 10% (for a new home) of your mortgage through a shared equity program run by CMHC. The reason the incentive is higher for new homes is to encourage home construction to address supply shortages in Canada. To be eligible, first time home buyers would need to have household incomes of less than $120,000 per year. There’s no information in the budget at this point about paying back the shared equity mortgage or the timing of doing so.
Canada Training Benefit
This is a new skills training tax credit that the government will spend up to $1.7 billion to develop. It is based on the fact that people are now changing jobs more often throughout their working life, and often need to upgrade their skills in a rapidly changing economy. Essentially, you will accumulate $250 a year in a notional account that will be tracked by the Canada Revenue Agency. Then, up to 50% of that notional account can be used to help pay for eligible tuition down the road. To be eligible to receive the credit, you’ll need to be between 25 and 65, earn more than $10,000 a year, but less than $150,000.
Cultural Property Donations
When you give away property that is deemed to be cultural in nature (paintings, books, manuscripts, sculptures, etc.), you get a tax deduction for the value of the property you donate to a designated institution (museums, public art galleries, etc.). In addition, any capital gains that have accrued since you purchased the property are waived. The budget looked at cleaning up an issue that has previously caused problems (i.e. whether the property is considered of “national importance”). This requirement has been dropped to make it easier for individuals to donate, receive their tax credits, and to ensure that the Canada’s cultural heritage remains in Canada.
Stock Option Changes
I had mentioned at the beginning that there were no new taxes. Actually, there is one change coming and it will apply to stock options. Currently employees who receive stock options receive preferential personal income tax treatment in the form of a stock option deduction. This results in them being taxed at a rate of one half of their normal tax rate (i.e. the same as capital gains). The government feels that the majority of these deductions go to a very small number of high income individuals and they’d like to change that.
To address this issue, the government will limit the benefit of the employee stock option deduction for high income individuals employed at large, long-established, mature firms. They will do this by initiating a $200,000 annual cap on employee stock option grants (based on the fair market value of the underlying shares) that may receive tax-preferred treatment. For start-ups and rapidly growing Canadian businesses, employee stock option benefits would remain uncapped. At this point the government hasn’t defined what companies will be considered “large, long-established, mature firms”; however, further details will be released in summer of 2019.
- Auto-Enrolment for the Canada Pension Plan: Many Canadians forget to enrol in the CPP. If you’re one of those people, you’ll be auto-enrolled at age 70.
- Broadband for Northern and Rural Communities:The government is promising high speed internet to all Canadians and plans to spend $5 to $6 billion over 10 years to develop it.
- Canadian Drug Agency: The budget proposes to create a new Canadian Drug Agency. Their goal will be to work on behalf of Canadians to help make “prescription drugs more affordable for all Canadians.” They will spend $35 million over four years to create the agency. In addition, the budget proposes to help people with rare diseases pay for their high-cost medication. This will cost the government $2 billion over two years.
- Digital Subscriptions: If you’re buying your news online, the government will now give you a 15% tax credit on up to $500 of digital subscriptions.
- Farmers: If you’re a dairy, egg, or poultry farmer, you will benefit by the $3.9 billion of compensation that you’ll receive as a result of supply-management changes that have taken place following the trade agreements made via the European Union (CETA) and the Trans Pacific Partnership.
With all of these new programs and incentives, the budget predicts a $19.8 billion deficit in 2019-20 and that is expected to continue for the foreseeable future.Should you have any questions about the 2019 Federal Budget we urge you to call us at 780 426 2400 or e-mail us at email@example.com.