Trent Henry of Ernst & Young discusses personal and corporate tax measures in the 2009 federal budget. Personal tax measures were modest, but there were some.
Mr. Henry is the Tax Managing Partner for Ernst & Young and is based in Toronto. Prior to that, he was the leader of the firm's international tax practice for Ernst & Young. While in New York, he was a Partner at Ernst & Young's Canadian Tax Desk, part of Ernst & Young's recognized Foreign Tax Desk program.
Read the firm's tax alert here.
He provides tax consulting services with a particular focus on international taxation, including mergers and acquisitions, structuring, and financing. Join the Conversation with Mr. Henry for a discussion at noon Wednesday. Or get a jump on the queue by submitting your question here.
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Cathryn Motherwell, deputy editor, Report on Business: First off, I'd like to know your general thoughts on the tax provisions in this budget?
Trent Henry: There weren't a lot of changes. The personal tax cuts were not all that deep and not bound to save tax payers a lot of money. On the business side, some of the changes were welcome. The interest deductibility for Canadian multinational companies is a welcome change. As are the changes to enhancing the small business deductions - that's a good measure from a business perspective. Same goes for the accelerated capital cost allowance incentives for the purchasing of manufacturing and processing equipment, computer equipment and software.
Jit Pat from Sorel-Tracy asks: Does it make sense to recontribute 25 per cent of RRIF withdrawal, as one would need to draw a higher percentage of the RRIF, which would result in higher tax?
Trent Henry: The strategy in December would have been to withdraw the full amount and recontribute. First of all, this allows you to reduce your tax in 2008 by the amount of the recontribution. Secondly, it's going to reduce the net assets at the beinning of the year in which your 2009 withdrawal is based. In fact, it appears you can actually make a withdrawal in January and still recontribute, because the legislation has not yet been passed. You also have to take into account any differences in tax brackets between the two years.
Mark Dip from Ottawa asks: Mr. Henry, do you think the home renovation refund will have a retroactive date? I've been at it for over a year, so it would be nice to recoup some old expenses (although I think I know what your answer will be (so much for taking the initiative).
As well, will the refund only apply if you generate employment by bringing in a contractor? I've been doing almost all of it myself.
Trent Henry: No, I don't think there is any hope that the Department of Finance will amend the proposal given their goal is to stimulate spending and in this regard the focus is expenses incurred after January 27, 2009 and before February 1, 2010.
To the extent you are doing the work yourself you may still be able to claim the cost of eligible expenditures including building materials, fixtures, equipment rentals and permits. It remains unclear what the CRA may require to demonstrate the expenses were for eligible expenditures. Eligible expenditures must be supported by receipts of course.
BJ Homes from Ontario asks: Is the government attempting to hoodwink seniors with this example?
Personal Income Tax Relief for Seniors Example Winston and Olivia are a senior couple receiving $65,000 and $20,000 respectively in pension income. In the absence of the measures taken by the Government, they would have paid $13,636 in federal personal income taxes in 2009. · Tax relief specifically targeted to seniors and pensioners, such as the 2006 increase in the Age Credit, the doubling of the pension income credit and pension income splitting, reduced their personal income taxes by $1,769. · Winston and Olivia also benefit from $393 in other personal tax relief, introduced since 2006, such as the reduction of the lowest personal income tax rate. · As a result of these measures, their federal personal income taxes in 2009 have been reduced by 16 per cent, or $2,162. · In addition, the increase in the Age Credit amount in Budget 2009 will reduce their taxes by $300, and other personal tax reductions in this budget will provide a further $331 in tax relief. · In total, their federal personal income taxes in 2009 will be reduced by 20 per cent, or $2,793.
Only the last two items are in Budget 2009. Therefore, in this example the couple are only saving $631 as a result of the new budget not $2,793 as claimed.
It seems like an attempt to confuse seniors by including measures from 2006.
Trent Henry: The examples given in the budget documents cover changes made by the government since 2006. You are correct - the changes made solely in budget 2009 result in savings of $631. Generally, it would appear that the government has consistently continued to take measures that are aimed at benefitting seniors.
Trent Henry adds: We have just learned from a delayed press conference this morning, Liberal Leader, Michael Ignatieff indicated that the Liberals will support the budget but will move an accountability amendment this afternoon that would require the Conservatives to release regular status reports on the economy and the budget measures, starting in March.
Cathryn Motherwell: Would you please outline the things we should watch for as we ponder some renovations to take advantage of the temporary home renovation tax credit?
Trent Henry: Proving that it was used for home renovation, collecting all your receipts to document the renovation. If you're using a relative to do the work, you have to ensure that the individual is registered for GST. Another point to watch out for - if you've already got an agreement under way, you should consider your options in terms of a new agreement.
Cathryn Motherwell: Would you please summarize the tax benefits to low and middle-income earners?
Trent Henry: An individual earning $40,000 will save $115. That breaks down into $33 for the increase in the basic personal amount; $82 relates to the increase in threshold for the first tax bracket.
If the person is a single senior, they would save an addditional $150 in relation to the increase in the age credit.
A single parent with one child earning $20,000 would receive $539 as an additional working tax benefit.
Cathryn Motherwell: What about the provisions to help small business owners? What kinds of things in this budget should they key on?
Trent Henry: For incorporated small business owners, the most significant proposal includes an increase in the amount of income eligible for the lower small business rate (up from $400,000 to $500,000).
In addition, all business owners benefit from the accelerated capital cost allowance changes (including manufacturing and processing equipment, as well as computer hardware and system software).
Cathryn Motherwell:Were there tax measures that you expected to see in the budget, such as the much-talked-about interest deductibility plan?
Trent Henry: Given the pre-budget leaks and the focus on infrastructure spending, we were not expecting much in the way of either personal or business tax measures. However, there are a number of significant legislative matters that we expect the government will deal with in upcoming technical bills. No time frame was provided by the government for these measures. These include corporate measures dealing with such things as international taxation and conversions of SIFTs (income trusts) among other things.
MarkMark Gallant asks:
Hey Trent long time no see!! It's great to see a fellow UPEI'er doing so well.
I had not read the details of the budget other what I saw on the news last night. I am sure I can read up on it but thoutgh I'd ask. A question I had was regarding home renovations and the parameters around that. Is it only for hiring tradesman or is it do it yourself? 15% up to $1500 benefit.
Also do the new tax cuts make much difference to single income families.? Would more (or the same) benefits still accrue if it was 2 people together earning $50K vs 1 person/1 stay at home. At $100K? Is it more of a low income break?
Trent Henry: The maximum credit is $1,350 because it's for expenditures in excess of $1,000 (up to $10,000). If you're doing it yourself, it would only be the materials, fixtures, equipment rentals and permits that would apply as there is no cost of labour. It remains to be seen what evidence you're going to have to provide to prove these items were used for home renovation.
Two people earning $50K save about $331 as a result of this budget. Whereas one person earning $100K saves about $317.
STW asks: Can you tell us where we can obtain more information on what home reno's qualify? Is there a web site you or the government host that could add clarity, such as would a new roof qualify?
Trent Henry: Additional information on the home renovation tax credit will soon be available on Canada Revenue Agency's website at www.cra.gc.ca.
In addition, information is also available at www.fin.gc.ca, the Department of Finance's website.
Cathryn Motherwell: Thanks very much for your time. Are there any other elements in the budget that will affect individual finances?
Trent Henry: There were a couple of additional personal tax measures targeted at the housing sector. These include a first-time home buyer's tax credi (a new, non-refundable credit based on amounts of to $5,000 and available to first-time home buyers. This will generate a one-time $750 tax savings).
In addition, the dollar limit for withdrawals from RRSPs under the Home Buyers' Plan is increased to $25,000 from $20,000.
There is a definition of " new home buyer" - people who have owned a home in the past five years will not qualify. However, if you have to acquire a home that's more suitable for an individual with a physical disability, then the five-year restriction does not apply.
This budget was all about spending. Accordingly, there is very little with respect to either personal or corporate tax changes.
As we commented earlier, we expect the government will deal with tax changes in upcoming technical packages.
The approach the government has taken was to spread any tax benefits among all Canadians. Many people may be disapointed with the lack of personal tax savings as a result of this budget.
From the corporate perspective, the government has continued to bring down corporate tax rates and further enhance the incentives for small business corporations.