February 23, 2005 Federal Budget Highlights

Personal

 

-          The federal budget proposes to increase the maximum contribution limits for registered retirement savings plans (RRSPs) and registered pension plans (RPPs) over the next few years. RRSP contributions are presently capped at $16,500 for 2005 and $18,000 for 2006 (with indexation for later years); RPP contributions are capped at $18,000 for 2005 (with future indexation).  Adjustments will also be made to the maximum pension limit for defined benefit RPPs.  The proposed annual contribution limits are as follows:

Year

RRSP

$

RPP

$

2005

16,500

18,000

2006

18,000

19,000

2007

19,000

20,000

2008

20,000

21,000

2009

21,000

22,000

2010

22,000

(Indexed)

-          The budget proposes to eliminate the 30% limit on foreign property held by pension funds, RRSPs and other tax-deferred retirement plans in 2005.

-          The basic personal amount exempts the first $8,149 of income from federal personal income tax for 2005. In addition to indexation adjustments, the annual increases to this amount that take effect due to indexation, the amount is scheduled to rise by an additional $100 in each of 2006 and 2007, and $400 in 2008. In 2009, the amount will rise by the greater of $600 and the amount required bringing the credit amount to at least $10,000.

-          The dependent spouse or common-law partner credit amount and the equivalent amount for a wholly dependent relative ($6,920 in 2005) will increase by $85 in 2006 and 2007, and $340 in 2008.  The increase in 2009 will be the greater of $510 and the amount required to bring the credit amounts to $8,500.

-          Revisions to the disability tax credit and amounts eligible for the medical tax credit were announced.

-          The maximum amount of medical and disability related expenses that caregivers can claim on behalf of their dependants were increased to $10,000 (from $5,000) effective for 2005.

-          A new 16% non-refundable tax credit is introduced for up to a maximum of $10,000 of eligible adoption expenses.


 

Business

-          The budget proposes to eliminate the current corporate surtax in 2008 and reduce the general corporate income tax rate by two percentage points by 2010.  Revised rates are as follows:

Year

General Rate

%

Surtax

%

2005

21.0

1.12

2006

21.0

1.12

2007

21.0

1.12

2008

20.5

-

2009

20.0

-

2010

19.0

-

Year

Current Rate

%

New Rate

%

Electricity generating combustion turbines

8%

15%

Electricity transmission and distribution assets

4%

8%

Oil and gas pipelines

4%

8%

Oil and gas pipelines – compression equipment

8/20%

15%

Certain energy generation equipment

30%

50%

Telecommunications infrastructure cables

8%

12%

 

-          The government proposes to adjust capital cost allowance (CCA) rates for the following types of assets acquired on or after February 23, 2005:

 

-           Eligibility for investment tax credits for scientific research and experimental development (SR&ED) performed in Canada will include SR&ED activities performed within 200 nautical miles of the coastline.


 

 

 

GST and Excise Tax

-          The budget proposes to hold corporate directors liable for both unpaid net GST/HST amounts and net tax refund amounts to which the corporation is not entitled.

-          A web-based GST/HST registry will be established to verify that suppliers are registered.

-          The 10% excise tax on jewellery manufactured and sold in, or imported into Canada will be phased out over the next four years and eliminated completely as of March 1, 2009.  The rate reduces 2% per year starting in 2005.

-          Eligible charities and non-profit organizations that provide health care services similar to hospitals will qualify for the 83% rebate of GST and the Federal portion of HST paid on eligible purchases.

 

Other

-          The budget proposes an immediate increase to the deposit insurance coverage limit from $60,000 to $100,000 of insurable deposits.

-          For tickets for air travel purchased on or after March 1, 2005, the budget proposes reductions to the Air Travelers Security Charge.

-          The Department of Finance issued proposals relating to the deductibility of interest and other expenses in October 2003. To address issues contained in these proposals, the government indicates it will release an alternative proposal for comment in the near future.