Finance Minister Bill Morneau released the 2019 Federal Budget on Tuesday, March 19th. The newly released budget has made a number of new tax changes some of which are still waiting to be clarified.
There were no new developments related to income splitting or passive investment rules that were introduced in the 2018 Federal Budget. However, there were some new opportunities for first time home buyers announced.
We have summarized some of the more impactful changes below along with some commentary. This is not an exhaustive list of items outlined in the budget but does represent some of the main items that will impact clients and professionals across Canada.
RRSP Intergenerational Business Transfers
The Budget announced that there will be continued development of new proposals to better accommodate intergenerational transfers of businesses.
RRSP Homebuyers Plan
The Budget has increased the withdrawal limit for the first time Home Buyers Plan (HBP) from $25,000 to $35,000 starting for withdrawals made after March 19th, 2019. This means that for couples they can withdraw up to $70,000 from their RRSPs for the HBP.
It also extends the HBP to those who have separated from their spouse or common-law partner. The plan is extended to those who live separate and apart from their spouse/common-law partner at the time of the withdrawal, and began to live separate and apart in the year in which the withdrawal is made or any time in the four preceding years, given they meet the other conditions.
First Time Home Buyer Incentive
One of the more controversial announcements was the first time Home Buyer Incentive in which CMHC will put up 10% of the price of a newly constructed home and 5% of an existing home towards the mortgage and share in the homeowner’s equity. This program is only available for first time home buyers with annual household incomes below $120,000. It would be an interest-free loan that is repayable once the main mortgage is paid off or the home is sold. The buyer must have a minimum 5% down payment and must be applying for an insured mortgage (less than 20% down).
For example, say you’re hoping to buy a $400,000 home with the minimum required 5% down payment, which works out to $20,000. With the new incentive, you could receive up to $40,000 through the CMHC. Now, instead of taking out a $380,000 mortgage, you would only need to borrow $340,000. This would lower your monthly mortgage payment from approximately $1,970 to $1,750.
The highest combined mortgage and loan amount the incentive will consider is four times the applicant’s annual income. This means that the mortgage amount combined with the CMHC loan cannot exceed $480,000. Therefore, the most expensive home that could be bought through this program can only be worth $500,000.
The Budget announced that they hope to have the incentive up and running by September but there are still questions with the repayment of this incentive. It has not been made clear whether the value of your house at the time of repayment will affect your amount owing to CMHC. For example, if you were to receive 10% of the price of the home now, what happens if in the future the value of your home goes up? Will your amount owing to CMHC go up as well? What happens if the value of your home goes down? Will the amount owing go down or will you still owe the dollar amount that was loaned at the time of purchase?
The Budget does not answer these concerns but has said that the details will be worked out over the next few months and hopefully give clarity by the fall.
Guaranteed Income Supplement (GIS)
Expanded guaranteed income supplements for low income seniors.
Medical Expense Tax Credit
Amounts paid for cannabis products purchased by a patient for medical purposes may be eligible for the tax credit..
The Budget announced that interest rates on the Canada Student Loans and Canada Apprenticeship loans will be reduced and that a six month grace period will be added after a student leaves school before interest starts to accrue. This means that the six month non-repayment period is now interest free as well. The floating interest rate will be reduced from its current rate of prime plus 2.5%, to prime (which is currently 3.95%) and the fixed interest rate will drop from prime plus 5% to prime plus 2%, starting in 2019-2020.