Chamber breakfast brings budget to business

By Kate Jackman-Atkinson
The Neepawa Banner

To better understand some of the tax effects of the Federal budget announced last week, the Neepawa and District Chamber of Commerce organized an information session with Marvin Beaumont of Meyers Norris Penny. The morning meeting seemed to generate the most interest among the town's bankers, who made up the majority of those in attendance.

Beaumont began by outlining some of the major financial commitments in Budget 2008. These include $13 billion for paying down the national debt, $1.6 billion over four years for the new Canada Student Grant Program, $123 million for the student loan program, $554 million over two years to hire more police and improve prisons, $100 million for mental health and homelessness, $90 million to encourage older workers to stay in the workforce, and $3 million for the development and promotion of E85 ethanol fuel.

Changes to personal tax
The piece of the budget that has generated the most interest is the Tax-Free Savings Account (TFSA). Beaumont explained the differences between the TFSA, and another tax free investment vehicle, the RRSP. While an individual's maximum RRSP contribution is determined by the amount they earn, any individual over 18 can contribute a maximum of $5,000 per year (indexed annually for inflation) to a TFSA. Any unused contribution room in a TFSA can be carried forward indefinitely, while room in an RRSP can only be carried forward until a person is 71 years old. While both accounts are registered with the government, contributions to a TFSA aren't tax deductible (contribution come from after-tax income), but money taken out isn't taxed. This is unlike an RRSP, for which contributions are tax deductible, but withdrawals are taxed. Both can be transferred tax-free to a spouse or common-law partner on death, and both will be issued by the same institutions.

To benefit students learning later in life, the budget has extended the time and age limits for Registered Education Savings Plans (RESP). This means that contributions can be made until a person reaches 31 (up from 21), and the deadline to terminate the plan is up to the 35th anniversary date, from the 25th.

Other changes include additions to the list of expenses and devices eligible for the Medical Expense Tax Credit, changes to the dividend tax credit (mostly to reflect the changes in federal tax rates for corporations), an extension of the Mineral Exploration Tax Credit, and an increase in the Northern Residents Deduction by 10 per cent.

Changes to business tax
While previously announced, Beaumont highlighted the corporate tax reductions announced in 2007. By 2012, the general corporate tax rate will be 15 per cent, the lowest among G7 countries, something Beaumont calls “pretty remarkable”. The tax rate for small businesses (under $400,000) will remain steady at 11 per cent.

The budget enhanced scientific research and experimental development tax incentives, as well as accelerating the capital cost allowance for manufacturing and processing equipment and clean energy equipment.

The budget also proposed changes to the remittance of source deductions. Instead of an immediate 10 per cent penalty on late remittances, the penalty will start at 3 per cent (for one to three days late) and increase to 10 per cent (for more than seven days late).

Changes to charitable donations
The budget extended the changes announced last year which allow people to donate Canadian securities to Canadian charities without being taxed on the capital gains. This change allows the donor to receive a receipt for the market value of the securities and the charity to receive the full values of the securities.

Cross-border businesses
Currently, any Canadian doing business with a non-resident is responsible for remitting the taxes. For example, if a Canadian is buying land from an American, the Canadian is required to withhold 10 to 15 per cent of the rent and remit it to Revenue Canada. Beaumont said that the government is “backing off” the rules applying to these transactions.