The 2018 federal budget, which was tabled in February, was expected to be a bad one for both businesses and individuals. Turns out it wasn’t quite as bad as expected. Here’s a summary of what’s new in personal tax measures, and what you might have to look out for when doing your 2018 personal tax planning.
Reporting requirements for trusts:For 2021 and subsequent tax years, additional information will be required on trust tax returns (for both domestic and non-resident trusts). Specifically, disclosure is to be made for all trustees, beneficiaries, and settlors (including anyone who is able to exert control over trustee decisions in relation to allocations of trust income or capital, such as a Protector). Certain trusts are excluded, including graduated rate estates, qualified disability trusts, non-profit trusts, and registered charities or trusts that are less than three months old or that generally hold less than $50,000 worth in assets throughout the year.
New penalties will be introduced for failure to file a T3 with such information ($25 a day, with a minimum of $100 and a maximum of $2,500 fine). If the failure to file was made knowingly or due to gross negligence, there is an additional penalty of 5% of the maximum fair market value of the property held (with a minimum penalty of $2,500).
Tax credits/deductions:Although no changes were announced to personal tax rates, the following tax credits were announced:
* Medical expense tax credit:the list of eligible expenses has been expanded to include a variety of expenses relating to service animals for patients with severe mental impairment (e.g., PTSD).
* Mineral exploration credit:This credit will be extended to flow-through share agreements entered into on or before March 31, 2019 (this was scheduled to expire on March 31, 2018).
Canada Workers Benefit:This enhances the current Working Income Tax Benefit, which is intended to improve work incentives for low-income Canadians for the 2019 year and onwards. The maximum benefit will be increased by $170, to $1,355 for individuals without dependents, and to $2,335 for families). Additionally, the disability supplement will be increased to $700 for 2019. The benefit will be reduced for single individuals with income in excess of $12,820 and families with income over $17,025 (and fully eliminated for income at $24,111 for individuals and $36,483 for families). The benefit can be determined even when not specifically claimed.
Registered Disability Savings Plan (RDSP):Currently, there is a temporary measure to permit certain family members (parents, spouses, or common-law partners) to be the planholder of an RDSP. This is set to expire at the end of 2018. The budget has extended this measure to the end of 2023, and if a qualifying member becomes a planholder before then, they can remain as the planholder after 2023.
Child benefits:Foreign-born status Indians residing legally in Canada (who are neither Canadian citizens nor permanent residents) will be allowed to be retroactively eligible for the Canada Child Tax Benefit (from 2005 to June 30, 2016). This benefit was replaced by the Canada Child Benefit introduced in 2016 (for which such persons were eligible). The budget also gives the federal government the right to share taxpayer information relating to this benefit with the provinces and territories as of July 1, 2018.
Currently, upon the revocation of the registration of a charity (whether voluntary or not), a 100% revocation tax is applied to the charity based on the total net value of its assets (which can be reduced by the making of qualifying expenditures). Under the budget, transfers of properties to municipalities will not be qualifying expenditures, subject to case-by-case approval.
Additionally, donations to a university outside of Canada can be eligible for a charitable donation credit, even if the university is not listed in the Income Tax Regulations. Both measures became effective on Feb. 27.
Courtesy Fundata Canada Inc. ©2018. Samantha Prasad, LL.B. is Tax Partner with Toronto law firm Minden Gross LLP. Portions of this article appeared in The TaxLetter, published by MPL Communications Ltd. Used with permission.