2011 Federal Budget

The June 6th budget is essentially the same as the budget presented on March 22, 2011. However, several measures were included to tighten the tax base, including ending corporate partnership tax deferral, new anti-avoidance rules for RRSPs, restricting the capital gains realized by minors on certain dispositions, and more restrictive rules for individual pension plans. The March tax measures and effective dates remain essentially the same in the June budget.

The budget documents indicate that the government intends to balance the budget by 2014. The government plans to do this by reducing operating expenses which will be announced in next year’s budget.

Business Tax Measures

A temporary credit of up to $1,000 will be available to offset the rise in 2011 EI premiums over those paid in 2010. The credit is available to employers whose total 2010 EI premiums were $10,000 or less. Extend the accelerated capital cost allowance for machinery and equipment for the manufacturing or processing for goods for sale or lease to 2014.

Personal Tax Measures

• A new 15% non-refundable Children’s Art Tax Credit for eligible expenses up to $500, effective in 2011.
• A family caregiver tax credit of $2,000 for a caregiver of a dependent person who has a physical or mental infirmity, beginning in 2012.
• Removal of the $10,000 medical expense tax credit cap for dependents over 17 years of age, starting in 2011.
• Amend the registered disability savings plan (RDSP) rules for 2011 to enhance the ability of a beneficiary with a shortened life expectancy to withdraw funds from the RDSP without encountering the 10-year repayment rule in respect of Canada Disability Savings Bonds and Canada Disability Savings Grants.
• Increase the flexibility for registered education savings plan (RESP) allocations among siblings, commencing in 2011.
• Amend the tuition tax credit in 2011 to include certain occupational, trade, or professional examination fees, ancillary fees, and charges as eligible fees for the credit.
• Amend the tuition, education, and textbook credit and shorten the minimum number of weeks for the course duration from 13 weeks to 3 consecutive weeks for attendance at foreign universities, beginning in 2011.
• Amend the rules for individual pension plans (IPP) to require annual minimum withdrawal amounts once the plan member attains 72 years of age. This is applicable in 2012.
• A further IPP amendment requires that contributions to an IPP that are related to past years of employment be funded first out of RRSP assets or as a reduction in RRSP contribution room before a deductible contribution can be made. This change is effective for past service contributions made after March 22, 2011.
• The “Kiddie Tax” will be extended to capital gains. The tax on split income (Kiddie Tax) will be amended to extend the application of the 29% federal tax rate to certain capital gains realized on the disposition of shares of a corporation to a person who does not deal at arm’s length with the minor, if taxable dividends on those shares would have been subject to the “kiddie tax”. This proposal is proposed to apply to transactions on or after March 22, 2011.
• The 15% non-refundable Child Tax Credit will be modified to eliminate the restriction that only one credit may be claimed for each domestic establishment for the 2011 and subsequent taxation years.