Federal Budget - Silver Lining for the Silver Haired

A summary service for the clients and friends of Wernham Wealth Management Inc.

Budget 2012 Personal Tax Changes:  March 30, 2012

Old Age Security and the Guaranteed Income Supplement

Age eligibility for the OAS and GIS programs increases to age 67 from age 65 beginning in 2023 and concluding in 2029. The eligibility for the (spouse's) Allowance and the Allowance for Survivors will also increase to age 62 from age 60 in the same time period. 

To offset this loss will require a savings of about another $100 per month into your retirement plan.

Option to defer OAS

Beginning on July 1, 2013, seniors will have the option to defer receiving their OAS pension for up to five years, in a manner similar to the deferral of Canada Pension Plan (CPP) benefits. Those who begin to receive their pensions later will receive a proportionately larger pension. 

This is potentially a good idea, and one that we should discuss!

Registered Disability Savings Plans  - Good News

Family members as plan holder

Under the current rules, many adults with disabilities have had difficulty establishing plans because their legal capacity to enter into a contract is doubtful. Provincial law requires that, to open an RDSP, the individual must be declared legally incompetent and a legal guardian named. Budget 2012 will allow, on a temporary basis, certain family members (spouse or common-law partner or parent) to become the plan holder of the RDSP for an adult individual who might not be able to enter into a contract. This measure will ensure that individuals may still benefit from RDSPs. In the meantime, the provinces and territories are expected to make more accommodating provisions.

Where the disabled individual is found not to be contractually competent, a legal representative of the disabled individual may replace the family member as the plan holder. This measure will become effective upon Royal Assent and will be in effect until Dec. 31, 2016.

Rollovers of Registered Education Savings Plans (RESPs)

Beginning in 2014, the current RESP rollover provisions to RRSPs will be extended to RDSPs. RESP investments, after Canada Education Savings Grants and Canada Education Savings Bonds have been repaid, may be rolled into an RDSP, so long as the plan holder has sufficient RDSP contribution room. These contributions will not generate CDSB or CDSGs. Withdrawals of rolled-over RESPs will be taxable.

Group Sickness and Accident Insurance Plans

Employer contributions made to a plan after March 28, 2012, that relate to coverage after 2012 and are not in respect of a wage-loss replacement benefit payable on a periodic basis (i.e. the benefits will not be taxable to the employee) will be a taxable benefit. Such contributions made in 2012 will be included in income in 2013.

Retirement Compensation Arrangements

A careful review required

Prohibited investment rules

Beginning March 29, 2012, the custodian of an RCA will be liable for a 50% tax on the fair market value of any prohibited investments in the RCA. The tax may be refunded if the prohibited investment is disposed of by the end of the year following the year in which it was acquired.

Advantage rules

A special tax equal to 100% of the fair market value of any RCA advantage will be payable in respect of any advantage extended, received or receivable after March 29, 2012. The definition of an advantage for an RCA will be adapted from the advantage rules from RRSPs. Advantages occurring before March 30, 2012; will not be subject to the tax if the amount of the advantage is included in income of the "specified beneficiary."

RCA tax refunds

Refunds of RCA taxes on contributions made after March 28, 2012, will not be refunded if the RCA property declines in value unless the decline cannot be reasonably attributed to prohibited investments or advantages.

Employee profit-sharing plans

A careful review required

A special tax at the top marginal rate of the "specified employee" will be assessed for contributions to an employee profit-sharing plan for a "specified employee" to the extent that the contribution exceeds 20% of the employee's salary received that year. A "specified employee" is an employee who has a significant equity interest in the employer or does not deal at arm's length with the employer. This measure will apply to EPSP contributions made by an employer on or after Budget Day, other than contributions made before 2013 pursuant to a legally binding obligation arising under a written agreement or arrangement entered into before Budget Day.

Where this tax is applied, a deduction will be allowed for the excess EPSP contribution so that it is not taxed twice.

Life insurance policy exemption test

A careful review required

The criteria for determining if a life insurance policy is an exempt policy will change for policies issued after 2013. The government has made several technical proposals and will consult with key stakeholders on these proposed changes over the coming months.

Travelers’ exemptions

Beginning June 1, 2012, the tariff exemption for goods brought into Canada will increase to $200 from $50 for travelers who are out of Canada for 24 hours or more, and to $800 for travelers who are out of Canada for 48 hours or more.

Reminder:  Don’t leave home without Medical Insurance While Outside Canada



Ted Wernham
Ted Wernham
Ranked # 1 in London by MDRT, the Premier Association of Financial Professionals. retirement income manager, Host Retirement Ready! Radio on AM1290 Ted Wernham