As many of you may have heard, Finance Minister Joe Oliver announced the government’s 2015 pre-election federal budget on April 21st, 2015. In review of the changes put forth in this budget, there are a few items that are relevant to a number of our clients that we would like to take the opportunity to review:

TFSA Limits

One of the changes that impacts all Canadian taxpayers was the increase to the annual TFSA contribution limit from $5,500 per year to $10,000. This increase will take effect for the 2015 tax year, increasing the total amount of contribution room to $41,000 for individuals with no contributions to date. While the increase allows for a substantial opportunity for tax-free investment income and growth, it should be noted that contributions are made in after-tax earnings. If you have a corporation, it may still be in your best interest to retain the funds within the corporation where they will be taxed at your corporation’s tax rate, which tends to be substantially lower than your personal tax rate. If your income is in the lower marginal tax rates, then this change may provide you with an enhanced opportunity for tax-free growth.

RRIF Withdrawal Minimums

For those of our clients who have RRSPs or RRIFs, a change was implemented that will provide more flexibility in RRIF withdrawals. Current minimum RRIF withdrawal rates often times force individuals to remove funds from their RRIFs that they may not necessarily need to meet their day-to-day household requirements. This unwanted income subjects households to higher marginal tax rates on income that they do not necessarily need. The 2015 budget reduces the minimum withdrawal amount to 5.28% at 71 (from 7.38%) and to 18.79% at age 94 (from 20%). At age 95, the withdrawal minimum will remain capped at 20%. These changes will allow retirees to retain a larger amount of their retirement funds within their tax-sheltered account until they are removed at a later date.

Federal Small Business Tax Rate

The change that will have the biggest impact on a majority of TPC clients is the reduction of the federal small business tax rate. Currently, the federal tax rate on all corporate income under $500,000 is 11%. The 2015 budget proposes to decrease the rate down to 9% over the next 4 years. The change is proposed to be phased in through a 0.5% annual reduction until 2019. With this proposed change there will also be an adjustment on the taxation on dividends from these corporations, with the effective tax rate increasing proportionally over the same time frame.

These are three of the changes that were proposed in the 2015 federal budget that we found to be most relevant to TPC clients. If you have any questions or concerns about the changes listed above and how they relate to your specific situation, please do not hesitate to contact our office and we will be more than happy to review with you.