2007 Federal Budget Personal Tax Updates

Personal Income Tax Updates:
New Child Tax Credit - This is a new non-refundable child tax credit for parents in the amount of $2,000 (indexed) for each child under the age of 18 years at the end of a taxation year. Conditions: a child resides together with the child's parents throughout the year, either of those parents may claim the credit. In other cases, the credit will be claimable in respect of a child by the parent who is eligible to claim the wholly dependent person credit for the year in respect of the child. Each $2,000 tax credit will amount to $310 of Federal tax savings. If Alberta introduces this same tax savings rule, each Alberta parent of a child under the age of 18 would receive a combined tax reduction in the amount of $510 per child.
Spousal amounts - The proposal is to slightly increase the income thresholds from what a spouse can currently earn from $7,581 to $8,929 for 2007. A high income earner does not benefit from this credit as these spousal income thresholds are set very low.
Public Transit Tax Credit Expansion - extending the tax credit for public transit passes to innovative fare products, such as electronic fare cards and weekly passes."
Increase to the Lifetime Capital Gains Deduction - The current maximum capital gains deduction on qualified farm, fishing and smll business corporation shares is $500,000. The Budget proposes to increase the maximum to $750,000. The capital gains exemption will increase to $625,000 for dispositions from March 19 2007 to Dec 31 2007. The $750,000 limit will become effective for dispositions from January 1 2008 onwards.
RRSPs - Contribution and conversion age from a RRSP to a RRIF: the Budget proposes to increase the age limit to age 71 from the current age limit of 69.
Introduction of "Registered Disability Savings Plan - This plan will be introduced to assist parents and others to save for the long-term financial security of a child with a severe disability. This will have similar principles as those of a Registered Education Savings Plan.
Donations to Private Foundations - Donations of publicly listed securities to public charities have been eligible for a reduced inclusion rate on capital gains since 1997 and a complete exemption since May 2, 2006. The Federal Budget proposes to eliminate the taxation of capital gains arising from donations of publicly listed securities to private foundations for gifts made on or after March 19, 2007. These proposals have significant tests that must be met and include an anti-avoidance measure to prevent inappropriate planning.
Registered Education Savings Plans (RESP)- Federal budget 2007 proposes to:
1.) Eliminate the $4,000 annual RESP contribution limit and increase the lifetime contribution limit to $50,000 from $42,000
2.) Increase the annual maximum contribution that qualifies for the 20 per cent Canada Education Savings Grant (CESG) incentive to $2,500 from $2,000 - for a yearly maximum CESG of $500, up from $400.
The maximum CESG for a year will increase to $1,000 from $800 if there is unused grant room from previous years - The lifetime CESG limit remains at $7,200.
Increased Income Tax Installment Threshold - Currently, individuals are required to make quarterly installment payments in respect of income taxes if the estimated income tax payable for the current year or the actual income tax payable for either of the two preceding years (that exceeds the amounts withheld at source) is greater than $2,000. The Federal Budget proposes to increase this installment threshold amount to $3,000 starting with the 2008 taxation year.
· Working Income Tax Benefit - The Federal Budget announced a new refundable tax credit for low income working Canadians. This credit will be a maximum of $500 for single individuals and $1,000 for families. It will be computed as 20% of earned income in excess of $3,000 to the maximums mentioned. The credit is reduced by 15% of net family income in excess of $9,500 for single persons and $14,500 for families.
Scholarships/Bursaries - The proposal is to recognize all amounts received in the taxation year on account of scholarships and bursaries related to the individual's enrollment in an elementary or secondary school as exempt income (not reported as income).