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'The heart of this budget is at home'


This federal budget is a study in home economics.

Encourage people to spend money on fixing up or buying homes and you stimulate the economy. That's the theory behind the temporary new Home Renovation Tax Credit and several other budget measures aimed squarely at home owners and buyers. The budget also contains modest income-tax cuts tilted toward low- and middle-income people, and it promises consumers some help with onerous credit-card regulations. But it's the homey touch that's going to get people talking.

If the budget passes in the House of Commons – and that's not a done deal – then the home-renovation credit will be available to people who spend money on goods or work on their homes after Jan. 27 and before Feb. 1, 2010. The nuts and bolts of this tax credit: You would claim a 15-per-cent credit against spending of more than $1,000 and capped at $10,000, with a maximum credit of $1,350. By comparison, the personal income-tax measures in the budget would amount to one-year savings of $483 for a two-earner family with two kids and income of $150,000.

The renovation credit would apply to work done on houses, cottages and condominiums, and projects can range from finishing a basement to redoing a kitchen, painting, laying new sod and replacing a furnace. Routine maintenance and appliances or electronics would not count.

Rookies in the housing market benefit from a couple of budget measures, the first being a First-Time Home Buyers' Tax Credit designed to help defray such costs as legal fees and land-transfer taxes. For homes bought after Jan. 27, a 15-per-cent tax credit would apply on expenditures of up to $5,000, which would mean maximum tax savings of $750.

As well, first-time buyers would be able to make greater use of the federal Home Buyers' Plan, which allows tax-free withdrawals from registered retirement savings plans for the purpose of buying a first home. The new withdrawal limit would be $25,000, up from $20,000.

Both the increased limit for the Home Buyers' Plan and the new first-time home buyers' tax credit would be available as well to existing homeowners with disabilities who want to move to a more accessible home (you have to be eligible for the disability tax credit). Both measures can also be used to buy a home for a disabled relative.

There are three main proposals to cut income tax in the budget, all of which are modest and unlikely to make an appreciable change in your take-home pay. First off, the amount people can earn tax free would rise to $10,320 for the 2009 tax year from $9,600 in 2008. Budget documents show this measure would provide tax savings of $66 annually for a two-earner couple with two kids and income of $150,000.

A second tax-cutting measure would raise the ceiling for the first and second tax brackets, which means people could earn more without jumping to a higher level of taxation. For example, the top of the first tax bracket would be raised to $40,726 in 2009 from $37,885 in 2008, a move that would allow more income to be taxed at a rate of 15 per cent instead of 22 per cent. Combine this with similar changes to the second tax brackets and you end up with tax savings this year of $417 for the two-earner family mentioned earlier.

Lower-income Canadians will get further tax relief through enhancements to the Working Income Tax Benefit, as well as a measure that would allow them to earn more and still be eligible for the national child benefit and child tax benefit. Seniors get targeted tax relief in the form of a $1,000 increase to the Age Credit for 2009 to $6,408. On a net basis, this means maximum extra tax savings of about $150 a year.

The budget also announces the government's intention to get tougher with banks and other financial firms that issue credit cards. The government says it will require a minimum grace period on new purchases, which refers to the number of days you have until interest starts applying, and that it will move to “improve” debt-collection practices. As well, improvements will be called for in providing clear summary information on credit application forms.

Correctly, the government has sized up the level of financial literacy in this country and found it lacking. As a result, it plans to establish a task force of business people, academics and educators to recommend a national strategy on financial literacy.

The previous federal budget introduced the tax-free savings account, or TFSA, which financial companies began offering on Jan. 1. This year, the government has proposed to put TFSAs under the umbrella of coverage provided by Canada Deposit Insurance Corp. Note: CDIC protection applies only to bank accounts and term deposits held in TFSAs, not other investments such as mutual funds or stocks.

Another budget measure affects the taxation of registered retirement plans after the death of their owners. Current rules generally require an increase in the value of the plan after death to be reflected in the amount of tax charged against the plan's assets, while the budget would allow decreases to be reflected as well.

The budget's focus on home ownership is capped off by an announcement that the government plans to expand the amount of money available through its ecoEnergy Retrofit program, which provides grants of up to $5,000 to offset the cost of making energy-efficient home improvements. Tip: Find a project that qualifies for the ecoEnergy program and then claim the home-renovation tax credit as well.

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