5994395 - front view of the canadian parliament building , with nobody showing

The March 19 budget was an election budget, and did not intentionally court controversy. (See story on page 1.) Still, it did include proposals that will affect clients, including high earners. Here are several proposals to watch:

> Tax-free savings account (TFSA) holders will now be ultimately liable for any tax owing on income earned in a TFSA if the Canada Revenue Agency (CRA) determines the holder has been carrying on a business of day trading in the account. The government has proposed that the joint and several liability of a trustee of a TFSA in regard to business income earned would be limited to the property held in the TFSA only. If the TFSA’s assets cannot cover the tax liability, the holder will be responsible.

> An individual pension plan (IPP) can no longer be implemented simply to avoid tax on the commuted value of benefits from a defined-benefit (DB) plan. To prevent an unauthorized full transfer of the commuted value from a DB plan to an IPP, the government says it will prohibit IPPs from providing retirement benefits for past years of pensionable employment under a DB plan of an employer other than the IPP’s participating employer. If such retirement benefits are inappropriately provided for, these assets will be considered a non-qualifying transfer and be included in the client’s income for tax purposes. The measure applies to pensionable employment credited under an IPP on or after March 19.

> The federal government is targeting the “allocation to redeemers” methodology. Used by mutual fund trusts, including ETFs, this technique permits the trusts to allocate income and capital gains realized by the trust to redeeming unitholders. The 2019 federal budget proposes to deny a trust a deduction for any allocation made to a redeeming unitholder greater than the capital gain that would otherwise have been realized by the unitholder, if the unitholder’s redemption proceeds are reduced by the allocation. It also proposes to disallow allocations of ordinary income to redeemers if the unitholder’s redemption proceeds are reduced by the allocation. This measure would apply to taxation years of mutual fund trusts that begin on or after March 19.

The budget also included modest tax goodies aimed primarily at seniors and people with disabilities:

> Registered Disability Savings Plans (RDSPs) may now remain open after a beneficiary becomes ineligible for the disability tax credit (DTC). At present, if someone no longer qualifies for the DTC, the RDSP must usually be closed and up to 10 years’ worth of grants and bonds would generally have to be repaid to the government. Under the proposal, this may no longer be required. Instead, each year after the year in which the beneficiary turns 50, a decreasing amount from grants and bonds will have to be repaid, according to a set of complex new rules. Further, amounts held in RDSPs will be exempt from seizure in bankruptcy, except for contributions made in the 12 months before filing.

> The guaranteed income supplement ceiling will rise from $3,500 to $5,000, starting in July 2020. At the same time, the government will introduce a partial exemption of 50% that applies to an additional $10,000 of employment income. The proposed changes will also make self- employment income eligible for the exemption.

> Contributors over age 70 who are not enrolled in the Canada Pension Plan will be automatically enrolled starting in 2020. For those who don’t want to enrol, the government is proposing to extend the opt-out period from six months to a year.

> Prior to Budget 2019, donations of artwork would be eligible for a tax receipt only if the artwork was of “national importance.” As of March 19, artwork no longer needs to be of national importance to be eligible for the credit.

> Clients with online news subscriptions can claim a 15% credit on up to $500 of subscription costs, starting next year.