Explaining changes in the federal budget
* Editor's note: This is part three of a three part series on the effects of the new federal budget on your finances.
The RDSP was originally introduced in the 2007 budget. However, the 2008 budget explains that the government has not completed the regulations containing the details necessary to implement the Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs).
Until the regulations are finalized, financial institutions will be delayed in building the infrastructure required to enable them to offer the RDSP.
In addition, the budget provides more clarity as to the sustainability of the plan in the event that the beneficiary rescinds his or her disability tax credit certification.
The budget also proposes to eliminate the capital gain triggered on the conversion of certain unlisted exchangeable shares or partnership interests into publicly traded securities if the converted publicly traded securities are gifted to a registered charity within 30 days of exchange.
In addition, at the time the unlisted security is issued, it must be exchangeable into the publicly traded security and the publicly traded security must be the only consideration received on exchange.
The donation of exchangeable securities that are a partnership interest may trigger a capital gain where the adjusted cost base (ACB) of the partnership interest has been reduced by operating losses.
Based on discussions with the Department of Finance, these rules will not apply to flow-through shares where renounced deductions are claimed and used to reduce the ACB.
These proposals apply to donations made on or after February 26, 2008. If you received any exchangeable shares from some of the recent corporate reorganizations and have philanthropic intentions, this proposal could help you fulfil your goals to provide for others and save tax on your gift.
For the 2008 and subsequent taxation years, the budget proposes additions to the list of devices, prescribed by a medical practitioner, that would qualify for the medical expense tax credit.
In addition, the cost, including the cost of related care and maintenance, of service animals specially trained to assist individuals who are severely afflicted by autism or epilepsy will qualify for the credit. If you have a medical condition, you should review this tax credit annually.
On October 31, 2006, changes impacting certain distributions made by publicly traded income funds, income trusts or partnerships were introduced under the specified investment flow-through (SIFT) entity tax rules.
These rules applied a federal general corporate tax and an additional tax in lieu of provincial tax at a flat rate of 13% (average of provincial rates) on distributions made by publicly traded income trusts/partnerships.
For a publicly traded income trust/ partnership that existed on or before October 31, 2006, these above rules apply starting in 2011.
The 2008 budget proposes to replace the flat provincial rate of 13% with the provincial general corporate income tax rate for each province in which the publicly traded income trust/partnership operates its business.
The provincial general corporate income tax rate ranges from 10% to 16%. For publicly traded income trusts/partnerships established after October 31, 2006, the proposed rules would apply starting in 2009.
For publicly traded income trusts/partnerships that existed on or before October 31, 2006, the proposed provincial rate would apply starting in 2011.
Another important policy intention confirmed by the government in this budget is its desire to allow publicly traded income trusts/partnerships to convert to corporate form generally on a tax-deferred basis.
Note: The above information is based on the current and proposed tax law in effect as of the date of this article. The article is for information purposes only and should not be construed as offering tax advice.
Individuals should consult with a qualified tax and legal advisor before taking any action based upon the information contained in this article.
* David Konning is an investment and retirement planner at Royal Bank.
If you would like to reach him, please e-mail him at David.Konning@rbc.com or phone 856-0406.
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