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Mark Feldstein & Associates Tax Accounting Blog

Budget 2009 Overview

Finance minister Jim Flaherty’s federal budget on January 27, 2009 features a package designed to stimulate economic growth and to help Canadians to weather the current recession. The purpose of the budget is to get Canadians spending once again. The proposed deficit for 2008 – 2009 fiscal year will be $1.1 billion. This will be the first deficit in thirteen years. Originally, the federal government forecasted a surplus of $2.3 billion. The big deficit will start in 2009 – 2010 fiscal year with a forecasted deficit of $33.7 billion. It is now expected that the federal government will have deficits for the next five years totaling approximately $84.9 billion. The budget of 2009 details a massive stimulus package which amounts to approximately $40 billion over two years. Many of the government measures were announced prior to the budget. The government will spend money on infrastructure, social housing and job training. The federal government also plans on spending $200 billion through the extraordinary financing framework which is designed to improve access to credit for business and consumers. There is tax relief for business and individuals which is detailed below.

Small Business Deduction

The small business deduction has increased from $400,000 to $500,000 in respect to the annual business limit of a Canadian Controlled private corporation which is eligible for the small business tax rate. This will commence January 1, 2009. As a result, the $3 million dollar expenditure limit for the investment tax credit for scientific research and experimental development expenditures incurred by a Canadian Controlled private corporation will be reduced if taxable income exceeds $500,000 after January 1, 2009. The benefit of the refundable credit will be eliminated when taxable income reaches $800,000 instead of $700,000.

Manufacturing and Processing Equipment CCA Rates

The temporary increase to the CCA rate for equipment to a 50% straight line basis from a 30% class 43 asset has been extended for assets purchased in 2010 and 2011. The half year will apply and the asset can be fully written off in three years.

Computer Equipment and Software – CCA Rates

The deduction of computer equipment will be increased from 55% to 100% with no half year rule. Therefore, computer equipment can be claimed in one full taxation year. The change will be effective for eligible computer equipment acquired after January 27, 2009 and before February 2011. Under proposed legislation, computer equipment acquired after March 18, 2008 qualifies for a 55% capital cost allowance rate. Systems software will also be fully deducted in the first year. For this purpose, eligible computers and systems software acquired by a taxpayer will have to be new computer equipment and software as described in class 50 and must be used for the purpose of earning income in Canada.

Mandatory Electronic Filing

Corporations with annual gross revenues in excess of $1 million will be required to file tax returns electronically. This will be effective for taxation years ending after 2009. Also, electronic filing will be required for information slips such as T4’s and T5’s if there are more than 50 slips. This will be effective after 2009. There will be penalties for companies that do not comply with electronic filing.

Basic Personal Tax Credit

The basic personal exemption will be increased from $9,600 to $10,320 for 2009.

Marginal Tax Rates

The upper limit of the lowest personal tax rate will be increased to $40,726 from $37,885. The middle income tax bracket threshold will go to $81,452 from $75,769. These brackets will be indexed for inflation.

Home Renovation Tax Credit

The new home renovation tax credit will be available to homeowners on a family basis for renovations or alterations to the principal residence after January 27, 2009 and before February 1, 2010. The credit can be claimed in 2009 for expenditures that are in excess of $1,000 and up to a maximum of $10,000. Eligible expenditures will qualify if they are of an enduring nature and that are integral to the dwelling of the principal residence. Routine repairs such as appliances, furniture and fixtures will not qualify for the credit. Therefore, the maximum credit will be (($10,000-$1,000) x 15%) $1,350

First Time Home Buyers’  Tax Credit

For 2009, a new non-refundable tax credit will be available after January 27, 2009 by an individual or spouse which includes common law spouse who did not own any residential property in the year or for four calendar years prior. The individual will be eligible for a $5,000 tax credit which will result in tax savings of $750 as a non refundable tax credit. If the individual qualifies for the disability tax credit, the four year prior ownership test will not exempt them from the tax credit. 

Age Credit

The age credit is increased to $6,408. The credit begins to phase out at $32,312 of net income. The credit will be completely gone at $75,032.

The Homebuyers’ Plan

The home buyers’ plan is increased to $25,000 from $20,000 effective January 27, 2009.