BUDGET 2014: Personal Tax Planning, Part 2

Amateur Athlete Trusts

The budget proposes to allow income contributed to an amateur athlete trust after 2013 to qualify as earned income for purposes of determining the registered retirement savings plan (RRSP) contribution limit of the trust’s beneficiary.

If an individual who contributed to an amateur athlete trust before 2014 makes an election in writing and submits it to the CRA before March 3, 2015, any contributions made in 2011, 2012 and 2013 will also qualify as earned income.

The individual’s RRSP limit will be re-determined for each of these years and any additional RRSP room will be added to the individual’s RRSP contribution room for 2014.

Farming

The budget proposes to extend eligibility for the inter-generational rollover of farming and fishing property and the lifetime capital gains exemption to:

* Property of an individual used principally in a combination of farming and fishing;

* An individual’s shares in a corporation, or interest in a partnership, if the corporation or partnership carries on both a farming business and a fishing business (in particular, if a property of the corporation or partnership is used principally in either business, or is used principally in a combination of farming and fishing, the property will count towards the existing “all or substantially all” test).

Tax Deferral for Farmer: Currently farmers who dispose of breeding livestock due to drought, flood or excess moisture conditions in certain regions are permitted to defer up to 90 per cent of their sales proceeds until the next year (or a later year in certain conditions).

This deferral is to be extended as of 2014 to disposals of bees, and horses that are over 12 months of age that are kept for breeding.

International Tax Changes

And, Bye Bye Immigration Trusts. If you were not already aware, new immigrants to Canada were eligible for a 60-month tax holiday where assets were contributed to a non-resident trust (commonly referred to as “immigration trusts”).

However in a move that has still left me reeling (and calling up many of my new immigrant clients with the bad news), the government decided that this was no longer something they wanted to extend to new immigrants (without allowing for grandfathering any existing immigration trusts).

So any existing immigration trusts must essentially be shut down by the end of 2014.

Thin Capitalization – Back-to-Back Loans

The thin-capitalization rules contain a specific anti-avoidance rule for back-to-back loan arrangements. These rules will be expanded to apply where, among other things, a taxpayer is indebted to an intermediary and the latter’s loss exposure on the loan has been limited by certain non-resident persons.

Interest on such loans will be subject to the thin-capitalization rules and may be treated as a non-deductible dividend payment subject to a 25 per cent withholding tax. The expansion of the thin-capitalization rules will apply to taxation years that begin after 2014 and, for withholding tax, to amounts paid or credited after 2014.

 

Samantha Prasad LL.B.

 

The TaxLetter, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846

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