The week of April 20th, 2015 was a busy one for our federal and provincial Ministers of Finance as both Canada and Ontario revealed their 2015 proposed budgets to the public. There was some hooplah, some shock and awe at the proposed sale of a part of Hydro One and other Ontario government assets to fund infrastructure development in the province. Not so much concerning the federal budget seeing as it’s an election year. Harper’s government seemed to want to win points with voters more than stir any pots. With the Ontario Budget just having been passed by Parliament, it’s a great time to see how these two new pieces of finance legislation will affect you and me.
Canada’s Economic Action Plan targeted seniors and retirement planning, changing Registered Retirement Income Fund (RRIF) rules, as well as increasing Tax-Free Savings Account limits.
To add to existing pension-splitting advantages, proposed changes to RRIF rules will mean seniors won’t have to withdraw as much money from their retirement savings. The budget cuts the required withdrawal amount at age 71 to 5.28% from the current 7.38%. Required withdrawal rates still increase every year, but instead of topping out at 20% at age 94, the cap isn’t reached until age 95.
For long and short-term savers, there’s also been a bump to the maximum contribution to a TFSA from the current $5,500 to $10,000. The proposed change is retroactive to January 1, 2015, and Canadians over age 18 who have not contributed since the TFSA’s creation in 2009 now have $41,000 in contribution room.
Despite these two changes in favour of Canadians, be sure to consult your advisor to determine if and how much investing in your TFSA is right for you, and when you should start drawing from your RRIF.
Favourable to caregivers of older and disabled Canadians, the compassionate care benefits were extended from 6 weeks to 6 months. For families with young children, the expanded UCCB will pay out up to $1,920 per year for each child under the age of six, up from $1,200, and introduce a new benefit of up to $720 per year for each child aged six through 17. The new benefit amounts will be retroactive to January 1, 2015 and will be reflected in monthly payments to families starting in July 2015.
And, small businesses will get to keep more of their earnings. This year’s budget proposes to reduce the small business tax rate from the current 11% to 9% by 2019 – or 2% over the next four years. The reduction generally applies to the first $500,000 of business income.
Small business owners also will get a tax break if they sell their companies and donate the proceeds of the private company shares to charity within 30 days. To be eligible, a sale must take place in 2017 or later.
What did Ontario have in store? Some major asset shifts including Toronto real estate and a part of Hydro One. These are to finance the increase in infrastructure spending incorporated within the budget for the year – spending that will see opportunities in transit, highways, and bridges in the GTA and Hamilton areas to the tune of almost $50-billion of a total $130-billion 10 year plan.
The next item “splashed” in the press is that beer will become available for sale in up to 150 grocery stores across the province by May 2017, expanding to 450 stores in 10 years. Although the LCBO is still trying to figure out all the particulars with unions, distribution, and what to include (i.e. craft beer and ciders apparently considered “wine” and not beer), the model will likely go ahead as scheduled bringing in an estimated $100-million to fund infrastructure as a result of the “beer tax” to the distributors of $1 per 24-case not to be passed down to the consumer.
Drivers will continue to get relief from their auto insurers if they’re having winter tires installed on their vehicles, and banning premium increase for minor at-fault accidents. We’re still only halfway to the previously promised 15% cut in premiums across the board, but every little bit helps!
And lastly, looking at pension reform and the introduction of an Ontario Retirement Pension Plan (ORPP). This has been discussed and has many advantages and disadvantages. It’s good for Ontarians who aren’t motivated savers to know that this pension could be available to replace up to 15% of their pre-retirement earnings, however despite the proposed legislation outlining a combiner employer-employee contribution maximum of 3.86%, the increase remuneration costs to employers of small business in Ontario is on the rise which will reduce some business’s ability to grow their workforce and create new jobs.
In what may be considered an attempt to offset some of these costs, the government will be putting an additional $250 million into the Ontario Youth Jobs Strategy over the next two years.
To find out more about planning for your retirement income, the ORPP, Pooled Retirement Pension Plans (PRPP) and other government pension benefits or tax planning, contact an advisor today!