TFSA, RRIF and other changes from the 2015 Federal Budget
Here are the personal tax changes from the Federal Budget yesterday.
TFSA
The TFSA was introduced in 2009 as a way to save and invest for your future on a tax exempt basis. Contributions to a TFSA is not tax deductible but gains, income and withdrawals are tax free. Originally, the TFSA started with a $5,000 limit subject to inflation adjustments of $500 increments. Because of this, the TFSA limit from 2009 to 2012 was at $5,000, but changed to $5,500 from 2013 to 2014.
The new 2015 budget proposes to increase the TFSA annual contribution limit to $10,000 effective immediately and going forward. However, the annual contribution limit will no longer be indexed to inflation but will be increased only if legislated.
So if you have never contributed into a TFSA, you can now contribute up to $41,000 as long as you have been 18 years old since 2009.
You can invest your TFSA into a variety of investments like stocks, bonds, GICs, mutual funds and segregated funds.
RRIF
A RRIF is the reverse of an RRSP wherein you're supposed to start withdrawing from your RRSP once you retire or reach age 71, whichever comes first. When you withdraw from your RRIF, there is a required minimum that you need to take out. This is because after years of deferring your taxes, the government now wants to tax those money.
However, Canadians are living longer and have been delaying retirement as well. Some are working past 71 years old or have other income and are forced to withdraw from their RRIF. Currently, you are required to withdraw 7.38% of your income from your RRIF when you reach age 71. Their income plus their RRIF withdrawal could bump them up to their next tax bracket.
The new budget proposes to adjust the RRIF minimum withdrawal from age 71 to 94. The proposal will lower the required minimum from 7.38% at age 71 to 5.28%. This will allow people to preserve more of their RRIF assets while they age as well as continuing to benefit from tax deferred growth within the plan.
Employment Insurance (EI) Premium Relief
The budget estimates that by 2017, the EI employee premium rate will reduce to $1.49 per $100 of income from $1.88, a 21% reduction. This will benefit employees and employers on EI contribution.
This will occur as a result of the sever-year break even EI premium rate setting mechanism. This mechanism ensures that EI premiums are no higher than what is needed to fund the EI program.
T1135 Reporting-Foreign Income Verficiation Statement
If you own foreign investments whose total cost exceeds $100,000 at any point in the year, you need to complete and file form T1135 *Foreign Income Verification Statement* when you prepare your tax return.
Foreign property that's reportable includes money in foreign bank account like in the US, Singapore, etc. It also includes rental property in the US or other countries. Also included are foreign stocks like Apple or Google that are held in your Canadian, non-registered brokerage account. It excludes foreign securities held in a Canadian mutual fund or inside an RRSP, RRIF, RESP or TFSA and personal property such as a vacation home.
There is a simplified reporting system where the foreign property is over $100,000 and under $250,000. For foreign assets over $250,000, a more complex reporting system is required.
Check out this link for more details
Other Changes
TFSA
The TFSA was introduced in 2009 as a way to save and invest for your future on a tax exempt basis. Contributions to a TFSA is not tax deductible but gains, income and withdrawals are tax free. Originally, the TFSA started with a $5,000 limit subject to inflation adjustments of $500 increments. Because of this, the TFSA limit from 2009 to 2012 was at $5,000, but changed to $5,500 from 2013 to 2014.
The new 2015 budget proposes to increase the TFSA annual contribution limit to $10,000 effective immediately and going forward. However, the annual contribution limit will no longer be indexed to inflation but will be increased only if legislated.
So if you have never contributed into a TFSA, you can now contribute up to $41,000 as long as you have been 18 years old since 2009.
You can invest your TFSA into a variety of investments like stocks, bonds, GICs, mutual funds and segregated funds.
RRIF
A RRIF is the reverse of an RRSP wherein you're supposed to start withdrawing from your RRSP once you retire or reach age 71, whichever comes first. When you withdraw from your RRIF, there is a required minimum that you need to take out. This is because after years of deferring your taxes, the government now wants to tax those money.
However, Canadians are living longer and have been delaying retirement as well. Some are working past 71 years old or have other income and are forced to withdraw from their RRIF. Currently, you are required to withdraw 7.38% of your income from your RRIF when you reach age 71. Their income plus their RRIF withdrawal could bump them up to their next tax bracket.
The new budget proposes to adjust the RRIF minimum withdrawal from age 71 to 94. The proposal will lower the required minimum from 7.38% at age 71 to 5.28%. This will allow people to preserve more of their RRIF assets while they age as well as continuing to benefit from tax deferred growth within the plan.
Employment Insurance (EI) Premium Relief
The budget estimates that by 2017, the EI employee premium rate will reduce to $1.49 per $100 of income from $1.88, a 21% reduction. This will benefit employees and employers on EI contribution.
This will occur as a result of the sever-year break even EI premium rate setting mechanism. This mechanism ensures that EI premiums are no higher than what is needed to fund the EI program.
T1135 Reporting-Foreign Income Verficiation Statement
If you own foreign investments whose total cost exceeds $100,000 at any point in the year, you need to complete and file form T1135 *Foreign Income Verification Statement* when you prepare your tax return.
Foreign property that's reportable includes money in foreign bank account like in the US, Singapore, etc. It also includes rental property in the US or other countries. Also included are foreign stocks like Apple or Google that are held in your Canadian, non-registered brokerage account. It excludes foreign securities held in a Canadian mutual fund or inside an RRSP, RRIF, RESP or TFSA and personal property such as a vacation home.
There is a simplified reporting system where the foreign property is over $100,000 and under $250,000. For foreign assets over $250,000, a more complex reporting system is required.
Check out this link for more details
Other Changes
- Expansion of the Universal Child Care Benefit as of Jan 1, 2015. Increasing it to $160 per month for each child under 6 years of age and creating a new benefit of $60 a month for children aged 6 to 17 to replace the Child Tax Credit.
- Introduction of the Family Tax Cut which allows the transfer of up to $50,000 of taxable income to a spouse for a family with children under 18 -- but the tax credit is capped at $2,000.
- Child Care Expense Deduction limit raised in 2015 to $8,000 for children under 7 and $5,000 for children aged 7 to 16.
- Doubling of Children's Fitness Tax Credit to $1,000.
- Canada Student Grant will be made available to low and middle income students enrolled in educational programs with a minimum of 34 weeks.
- Reduction in the expected parental contribution under the Canada Student Loans Program and elimination of "in-study student income" so that students can work while attending school without having to worry about a reductio nin their financial assistance.
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