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Annex 5

Personal Income Tax Tax-Free Savings Account The Tax-Free Savings Account (TFSA) is a flexible, registered general-purpose account that was introduced in 2009 to improve the taxation of savings. Contributions to a TFSA are not tax-deductible, but investment income earned in a TFSA and withdrawals from it are tax-free. Unused TFSA contribution room is carried forward and withdrawals from a TFSA can be re-contributed to a TFSA in future years.

The TFSA was introduced with an annual contribution limit of $5,000 per individual, indexed to inflation in $500 increments. On January 1, 2013, the TFSA annual contribution limit increased to $5,500 due to indexation.

Budget 2015 proposes to increase the TFSA annual contribution limit to $10,000. This increase will apply as of January 1, 2015, so that a single annual contribution limit of $10,000 applies to the 2015 and subsequent calendar years. The TFSA annual contribution limit will no longer be indexed to inflation.

Home Accessibility Tax Credit Budget 2015 proposes to introduce a new Home Accessibility Tax Credit. The proposed non-refundable credit will provide tax relief of 15 per cent on up to $10,000 of eligible expenditures per calendar year, per qualifying individual, to a maximum of $10,000 per eligible dwelling.

Qualifying Individuals Seniors and persons with disabilities will be considered qualifying individuals for the purposes of the Home Accessibility Tax Credit and will be able to claim the credit. For the purposes of this credit:

• seniors are individuals who are 65 years of age or older at the end of the particular taxation year; and

• persons with disabilities are individuals who are eligible for the Disability Tax Credit at any time in a particular taxation year.

442 E C O N O M I C A C T I O N P L A N 2 0 1 5

Tax Measures Supplementary information

Eligible Individuals Eligible individuals will also be eligible to claim the Home Accessibility Tax Credit. For the purposes of this credit, an eligible individual, in respect of a qualifying individual, will be an individual who has claimed the spouse or common law partner amount, eligible dependant amount, caregiver amount or infirm dependant amount for the qualifying individual for the taxation year. In addition, an eligible individual, in respect of a qualifying individual, will be an individual who could have claimed such an amount for the taxation year if:

• in the case of the spouse or common-law partner amount, the qualifying individual had no income for the particular taxation year;

• in the case of the eligible dependant amount, the eligible individual was not married or in a common-law partnership and the qualifying individual had no income in the particular taxation year; and

• in the case of the infirm dependant and caregiver amounts, if the qualifying individual had been 18 years of age or older and had no income in the particular taxation year.

The Home Accessibility Tax Credit may therefore be claimed by the following individuals (provided that all other conditions are met):

• the spouse or common-law partner of the qualifying individual;

• a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece or

nephew of the qualifying individual; or

• a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece or nephew of the qualifying individual’s spouse or common-law partner.

Where one or more qualifying individuals or eligible individuals make a claim in respect of an eligible dwelling, the total of all amounts claimed by the qualifying individual(s) and eligible individuals for the year in respect of the eligible dwelling must not exceed $10,000.

Eligible Dwellings An eligible dwelling (which includes the land on which the dwelling is situated) must be the principal residence of the qualifying individual at any time in the taxation year.

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Annex 5

In general, a housing unit will be considered to be a qualifying individual’s principal residence where it is ordinarily inhabited (or is expected to be ordinarily inhabited within that taxation year) by the qualifying individual and it is owned (either jointly or otherwise) by the qualifying individual or the qualifying individual’s spouse or common-law partner. For the purposes of the Home Accessibility Tax Credit, a qualifying individual may have only one principal residence at any time, but may have more than one principal residence in a taxation year (e.g., in a situation where an individual moves in the taxation year). In situations where a qualifying individual has more than one principal residence in a taxation year, the total eligible expenditures in respect of all such principal residences of the qualifying individual will be subject to the $10,000 limit.

In the case of condominiums and co-operative housing corporations, the credit will be available for eligible expenditures incurred to renovate the unit that is the qualifying individual’s principal residence as well as for the qualifying individual’s share of the cost of eligible expenditures incurred in respect of common areas.

In the case where a qualifying individual does not own a principal residence, a dwelling will also be considered to be an eligible dwelling of the qualifying individual if it is the principal residence of an eligible individual in respect of the qualifying individual and the qualifying individual ordinarily inhabits that dwelling with the eligible individual.

Qualifying or eligible individuals who earn business or rental income from part of their principal residence will be allowed to claim the credit for the full amount of eligible expenditures made in respect of the qualifying individual’s personal-use areas of the residence. For expenditures made in respect of common areas or that benefit the housing unit as a whole, the administrative practices ordinarily followed by the Canada Revenue Agency to determine how business or rental income and expenditures are allocated between personal use and income-earning use will apply in establishing the amount qualifying for the credit.

Eligible Expenditures Expenditures will be eligible for the Home Accessibility Tax Credit if they are made or incurred in relation to a renovation or alteration of an eligible dwelling, provided that the renovation or alteration:

• allows the qualifying individual to gain access to, or to be more mobile or

functional within, the dwelling; or



• reduces the risk of harm to the qualifying individual within the dwelling or in gaining access to the dwelling.

The improvements must be of an enduring nature and be integral to the eligible dwelling. Examples of eligible expenditures include expenditures relating to wheelchair ramps, walk-in bathtubs, wheel-in showers and grab bars. Eligible expenditures will include the cost of labour and professional services, building materials, fixtures, equipment rentals and permits. Items such as furniture, as well as items which retain a value independent of the renovation (such as construction equipment and tools), would not be integral to the dwelling and expenditures for such items will therefore not qualify for the credit.

The following are examples of other expenditures that will not be eligible for the Home Accessibility Tax Credit:

• expenditures made with the primary intent of improving or maintaining the value of a dwelling;

• the cost of routine repairs and maintenance normally performed on an annual or more frequent basis;

• expenditures for household appliances and devices, such as audio-visual electronics;

• payments for services such as outdoor maintenance and gardening, housekeeping or security; and

• the costs of financing a renovation (e.g., mortgage interest costs).

The Home Accessibility Tax Credit will not be reduced by any other tax credits or grants to which a qualifying or eligible individual is entitled under other government programs. For instance, in the case of an individual who claims an eligible expenditure that also qualifies for the Medical Expense Tax Credit, the individual will be permitted to claim both the Home Accessibility Tax Credit and the Medical Expense Tax Credit in respect of that expenditure. Expenditures that are reimbursed, or are expected to be reimbursed, other than through a government program, will not be eligible.

Expenditures will not be eligible for the Home Accessibility Tax Credit if they are for goods or services provided by a person not dealing at arm’s length with the qualifying or eligible individual, unless that person is registered for Goods and Services Tax/Harmonized Sales Tax purposes under the Excise Tax Act.


Annex 5

The Home Accessibility Tax Credit will apply in respect of eligible expenditures for work performed and paid for and/or goods acquired after 2015. Any eligible expenditure claimed for the Home Accessibility Tax Credit must be supported by a receipt.

Minimum Withdrawal Factors for Registered Retirement Income Funds A Registered Retirement Savings Plan (RRSP) must be converted to a Registered Retirement Income Fund (RRIF), or the savings used to purchase a qualifying annuity, by the end of the year in which the RRSP holder attains 71 years of age. Contributions to a RRIF are not permitted and a minimum amount must be withdrawn annually beginning the year after it is established (i.e., no later than the year in which the RRIF holder attains 72 years of age). To determine the required minimum withdrawal amount, a percentage factor corresponding to the RRIF holder’s age at the beginning of the year is applied to the value of the RRIF assets at the beginning of the year. At the time of establishing the RRIF, holders also have the option to base the minimum withdrawal amounts on the age of their spouse or common-law partner.

The minimum withdrawal requirements for RRIFs ensure that tax-deferred RRSP/RRIF savings serve their intended purpose, which is to provide retirement income. The RRIF factors are also used to determine the minimum amount that must be withdrawn annually, starting at age 71, from a defined contribution Registered Pension Plan (RPP) and a Pooled Registered Pension Plan (PRPP).

The existing RRIF factors were determined on the basis of providing a regular stream of payments from age 71 to 100 assuming a seven per cent nominal rate of return on RRIF assets and indexing at one per cent annually. The factors are capped at 20 per cent for ages 94 and above to ensure that the RRIF may continue for the life of the holder (or the holder’s spouse or common-law partner).



Budget 2015 proposes to adjust the RRIF minimum withdrawal factors that apply in respect of ages 71 to 94, on the basis of a five per cent nominal rate of return and two per cent indexing. These assumptions are more consistent with long-term historical real rates of return on a portfolio of investments and expected inflation. The new RRIF factors will permit holders to preserve more of their RRIF savings in order to provide income at older ages, while continuing to ensure that the tax deferral provided on RRSP/RRIF savings serves a retirement income purpose. Table A5.2 shows the existing and proposed new RRIF factors. There will be no change to the minimum withdrawal factors that apply in respect of ages 70 and under, which will continue to be determined by the formula 1/(90 – age).

The new RRIF factors will apply for the 2015 and subsequent taxation years. To provide flexibility, RRIF holders who at any time in 2015 withdraw more than the reduced 2015 minimum amount will be permitted to re-contribute the excess (up to the amount of the reduction in the minimum withdrawal amount provided by this measure) to their RRIFs. Re-contributions will be permitted until February 29, 2016 and will be deductible for the 2015 taxation year. Similar rules will apply to those receiving annual payments from a defined contribution RPP or a PRPP.


Annex 5

Table A5.2 Existing and New RRIF Factors Age (at start of year)

Existing Factor

New Factor

% % 71 7.38 5.28 72 7.48 5.40 73 7.59 5.53 74 7.71 5.67 75 7.85 5.82 76 7.99 5.98 77 8.15 6.17 78 8.33 6.36 79 8.53 6.58 80 8.75 6.82 81 8.99 7.08 82 9.27 7.38 83 9.58 7.71 84 9.93 8.08 85 10.33 8.51 86 10.79 8.99 87 11.33 9.55 88 11.96 10.21 89 12.71 10.99 90 13.62 11.92 91 14.73 13.06 92 16.12 14.49 93 17.92 16.34 94 20.00 18.79 95 & over 20.00 20.00

Lifetime Capital Gains Exemption for Qualified Farm or Fishing Property The income tax system provides an individual with a lifetime tax exemption for capital gains realized on the disposition of qualified small business corporation shares and qualified farm or fishing property. The amount of the Lifetime Capital Gains Exemption is $813,600 in 2015 and is indexed to inflation.

Budget 2015 proposes to increase the Lifetime Capital Gains Exemption to apply to up to $1 million of capital gains realized by an individual on the disposition of qualified farm or fishing property. This measure will apply to dispositions of qualified farm or fishing property that occur on or after Budget Day.



The Lifetime Capital Gains Exemption applicable to capital gains realized on the disposition of qualified farm or fishing property will be the greater of (1) $1 million; and (2) the indexed Lifetime Capital Gains Exemption applicable to capital gains realized on the disposition of qualified small business corporation shares.

Registered Disability Savings Plan – Legal Representation Budget 2012 introduced a temporary measure to allow a qualifying family member (i.e., a beneficiary’s parent, spouse or common-law partner) to become the plan holder of a Registered Disability Savings Plan (RDSP) for an adult individual who may lack the capacity to enter into a contract. Budget 2012 indicated that this measure would apply until the end of 2016.

This measure was introduced in response to concerns that a number of adults with disabilities have experienced difficulties in establishing an RDSP because their capacity to enter into a contract was in doubt. Questions of appropriate legal representation in these cases are a matter of provincial and territorial responsibility. In some provinces and territories, the only way that an RDSP can be opened in these cases is for the individual to be declared legally incompetent and to have someone named as their legal guardian, a potentially lengthy and expensive process that could have significant repercussions for the individual.

Some provinces and territories have instituted streamlined processes that allow for the appointment of a trusted person to manage resources on behalf of an adult who lacks contractual capacity, or have indicated that their system already provides sufficient flexibility to address this concern.

To give the remaining provinces and territories the opportunity to address the RDSP legal representation issue described above, Budget 2015 proposes to extend the temporary measure introduced in Budget 2012 to apply to the end of 2018. The rules implementing the Budget 2012 measure will not otherwise be changed and a qualifying family member who becomes a plan holder before the end of 2018 can remain the plan holder after 2018.


Annex 5

Repeated Failure to Report Income Penalty Penalties may apply when a taxpayer fails to report all of their income on their income tax return. Where a taxpayer fails to report an amount of income in a taxation year and had failed to report an amount of income in any of the three preceding taxation years, the taxpayer is liable to a penalty equal to 10 per cent of the unreported income for that taxation year.

Another penalty (the “gross negligence” penalty) applies if the taxpayer knew or, under circumstances amounting to gross negligence, ought to have known that an amount of income should have been reported. The amount of this penalty is generally equal to 50 per cent of the understatement of tax payable (or the overstatement of tax credits) related to the omission. The penalty for repeated failure to report income does not apply if this penalty applies.

The repeated failure to report income penalty can sometimes be disproportionate to the actual associated tax liability, particularly for lower income individuals. In some cases, it can also result in a greater penalty than would be levied if the gross negligence penalty applied.

Budget 2015 proposes to amend the repeated failure to report income penalty to apply in a taxation year only if a taxpayer fails to report at least $500 of income in the year and in any of the three preceding taxation years. The amount of the penalty will equal the lesser of:

• 10 per cent of the amount of unreported income; and

• an amount equal to 50 per cent of the difference between the understatement of tax (or the overstatement of tax credits) related to the omission and the amount of any tax paid in respect of the unreported amount (e.g., by an employer as employee withholdings).

No changes are proposed to the gross negligence penalty, which will continue to apply in cases where a taxpayer fails to report income intentionally or in circumstances amounting to gross negligence.

This measure will apply to the 2015 and subsequent taxation years.



Alternative Arguments in Support of Assessments An income tax assessment is a calculation of a taxpayer’s total tax liability for a particular taxation year. Long-standing jurisprudence has held that on appeal from a tax assessment, the question to be answered is, generally, whether the Canada Revenue Agency’s assessment is higher than mandated under the Income Tax Act. The understanding in such an appeal was that, although the total amount from all sources that is assessed cannot increase after the expiration of the normal reassessment period, the basis of the assessment could change. This would allow, for instance, a reduced liability in relation to one item included in the computation of an assessment to be offset by an increased liability in relation to another item.

Consistent with this principle, there is a specific provision in the Income Tax Act which provides that the Minister of National Revenue may advance an alternative argument in support of an assessment at any time after the normal reassessment period. The purpose of this provision is to allow the Minister to advance an alternative argument after the relevant reassessment period has expired. This process of raising arguments and counter-arguments “in the alternative” is a conventional part of the litigation process.

A recent court decision held that, while the basis of an assessment can be changed after the expiration of the normal reassessment period, each source of income is to be considered in isolation and the amount of the assessment in respect of any particular source of income cannot increase.

Budget 2015 proposes that the Income Tax Act be amended to clarify that the Canada Revenue Agency and the courts may increase or adjust an amount included in an assessment that is under objection or appeal at any time, provided the total amount of the assessment does not increase. Similar amendments are proposed to be made to Part IX of the Excise Tax Act (in relation to the Goods and Services Tax/Harmonized Sales Tax) and the Excise Act, 2001 (in relation to excise duties on tobacco and alcohol products) to help ensure consistency in administrative measures in federal tax statutes.

These measures will apply in respect of appeals instituted after Royal Assent to the enacting legislation.


Annex 5

Information Sharing for the Collection of Non-Tax Debts The Canada Revenue Agency collects debts owing to the federal and provincial governments under a number of non-tax programs. Confidential taxpayer information currently cannot be used by Canada Revenue Agency staff to collect debts under many of these programs. As a result, the Canada Revenue Agency must segregate its tax and non-tax collection activities. This means that separate Canada Revenue Agency staff are required to collect the different types of debts and cannot share taxpayer information with each other. This limits the ability of the Government to achieve administrative efficiencies and can be frustrating for taxpayers who owe amounts under both tax and non-tax programs and who may be contacted by more than one Canada Revenue Agency debt collector.

To facilitate efficiency and coordination within the Canada Revenue Agency, Budget 2015 proposes to amend the Income Tax Act, Part IX of the Excise Tax Act (in relation to the Goods and Services Tax/Harmonized Sales Tax) and the Excise Act, 2001 (in relation to excise duties on tobacco and alcohol products) to permit the sharing of taxpayer information within the Agency in respect of non-tax debts under certain federal and provincial government programs. To ensure greater consistency in the information sharing rules in federal tax statutes, Budget 2015 also proposes to amend Part IX of the Excise Tax Act and the Excise Act, 2001 to permit information sharing in respect of certain programs where such information sharing is currently permitted under the Income Tax Act.

This measure will apply on Royal Assent to the enacting legislation.

Transfer of Education Credits – Effect on the Family Tax Cut The Family Tax Cut is a proposed federal non-refundable tax credit, capped at $2,000, for couples with children under the age of 18. The credit is intended to reduce or eliminate the difference in federal tax payable by a one-earner couple relative to a two-earner couple with a similar family income. The Family Tax Cut allows a higher-income spouse or common-law partner to notionally transfer up to $50,000 of taxable income to a spouse or common-law partner. The credit will apply for the 2014 and subsequent taxation years.



Where personal income tax credits have been transferred from one spouse or common-law partner to the other, the Family Tax Cut suppresses the use of those credits in the transferee’s hands. Instead, the personal income tax credits previously transferred are taken into consideration in the calculation of the transferor’s adjusted tax payable. This prevents the double counting of these credits in the calculation of the Family Tax Cut.

The previously-announced Family Tax Cut rules prevent transferred education-related amounts (Tuition, Education and Textbook Tax Credits) from being included in the Family Tax Cut calculation. Due to the rules for calculating these education-related credits, the double-counting issue described above is not present. This may therefore reduce the value of the Family Tax Cut for couples who transfer education-related amounts between themselves. This affects a very small percentage of couples claiming the Family Tax Cut for the 2014 taxation year.

Budget 2015 proposes to revise the calculation of the Family Tax Cut for the 2014 and subsequent taxation years to ensure that couples claiming the Family Tax Cut and transferring education-related credits between themselves receive the appropriate value of the Family Tax Cut. After the enacting legislation receives Royal Assent, the Canada Revenue Agency will automatically reassess affected taxpayers for the 2014 taxation year to ensure that they receive any additional benefits to which they are entitled under the Family Tax Cut.

Charities Donations Involving Private Corporation Shares or Real Estate Donations to registered Canadian charities and other qualified donees are eligible for a charitable donation tax credit (if the donor is an individual) or deduction (if the donor is a corporation). In addition, donations of publicly listed securities to qualified donees are exempt from capital gains tax. Donations of ecologically sensitive land and certified cultural property to certain qualified donees are also exempt from capital gains tax. In contrast, taxable capital gains can arise on donations of private corporation shares or other types of real estate.


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