2015 Federal Budget

The 2015 Federal Budget was tabled yesterday, and there were a few measures in the Budget that are worth noting, specifically:

• The annual contribution limit for Tax Free Savings Accounts will be increased to $10,000 per year for 2015 and subsequent tax years. This amount will no longer be indexed for inflation.
• The federal small business income tax rate for the first $500,000 of active business income will be decreased from the current 11% to 9%. This change will happen gradually with four equal annual decreases of 0.5% from January 1, 2016 to January 1, 2019.
• There will be corresponding upward adjustments to the gross-up and dividend tax credit that apply to non-eligible dividends paid to shareholders of small businesses (to account for the reduction in the small business income tax rate reduction).
• Capital gains realized on the sale of private company shares will be exempt from tax when the proceeds from the sale are donated to a registered charity within thirty (30) days of the sale. There are several measures to prevent abuse of this exemption (for example, preventing the vendor from reacquiring the property that was sold). This measure is only intended to come into effect after 2016.

As with all budgets, we will have to wait to see until the legislation is introduced to fully understand the extent of any of the above changes.  It is also important to note that since this is an election year, any newly elected government may alter or eliminate measures that extend beyond the current year (like the reduction in the small business income tax rate on the first $500,000 of active business income). It will be interesting to see whether provincial governments change their tax rates in response to these proposals.

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