2014 Budget Highlight

1. Taxation of Trusts and Estates
Following the 2013 budget’s announcement that the Government intended to change the
way trusts and estates are taxed, the 2014 budget contains measures that will increase
the tax for some trusts and estates starting in 2016. Generally all trusts and estates will
be subject to the highest marginal rate applicable to individuals and will not benefit from
the marginal rates as certain trusts currently do. One exception is for estates that will
still be eligible for the graduated rates for the first 36 months after an individual’s death.
Estates will also be required to have a calendar year end as of 2015 as well as be
subject to other previously announced tightening measures.
Donations by Estates
Currently a donation made pursuant to an individual’s Will is considered to be made
immediately before death even though the actual donation is made after death by the
estate. This can result in wasted credits. The budget proposes, for deaths occurring
after 2015, that there be flexibility for donations to be claimed on the date of death tax
return, the tax return for the year prior to death or a tax return of the estate.
Non-Profit Organizations (NPOs)
The budget announces the Government’s concern that the tax exempt status enjoyed by
NPOs may be being used to shelter tax on amounts made available for the personal use
or benefit of members, or for maintaining disproportionately large reserves. The
Government intends to review this issue and will release a consultation paper for public
comment. Note this review will not apply to registered charities.
Eligible Capital Property
Currently 75% of the cost of eligible capital property acquisitions such as goodwill and
other intangibles, are included in a cumulative eligible capital pool with a depreciation
rate of 7% of the declining balance. The budget announces there will be a public
consultation to repeal the eligible capital property regime. It will be replaced by a new
capital cost allowance class with an inclusion rate of 100% and a depreciation rate of 5%
of the declining balance. Transitional rules would allow for the transfer of existing
cumulative eligible capital balances to the new capital cost allowance class. These new
rules will not be effective until after the consultation has been completed.

2. Employer Source Deductions
Depending on a business’ historical level of average monthly payroll withholdings, it may
need to remit withholdings from as many times as once per month up to four times per
month. Budget 2014 increases the threshold of average monthly withholdings that
would require a business to remit more frequently to reduce administration time and
costs. The new thresholds are:
a. Increase to $25,000 from $15,000 the threshold level of average monthly
withholdings at which employers are required to remit up to two times per
month.
b. Increase to $100,000 from $50,000 the threshold level of average
monthly withholdings at which employers are required to remit up to four
times per month.
This measure will apply in respect of amounts to be withheld after 2014.
Five Year Immigration Trusts
The Income Tax Act currently provides an exemption from tax to certain trusts
established by individuals that were previously not resident in Canada. Effectively this
allows new Canadian residents to earn investment income tax free for up to five years.
The budget removes the exemption immediately for some trusts and in 2015 for trusts
currently eligible for the five year exemption as long as no additional contributions are
made to the trust starting on February 11, 2014.
Search and Rescue Volunteers Tax Credit
The budget provides for a new $3,000 ($450 tax savings) non-refundable tax credit for
individuals that perform a minimum of 200 hours of volunteer search and rescue
services in a year. This credit is similar to the existing credit for volunteer firefighters
and is available starting in the 2014 tax year.
Adoption Expense Tax Credit
The amount of this non-refundable tax credit has been increased to $15,000 from
$11,774 for 2014. The change applies to adoptions finalized after 2013. The amount of
the credit will be subject to indexed increases for taxation years after 2014.
Applying for the GST Credit
The GST credit is a refundable amount that taxpayers may receive if their household
income is at or below a certain threshold. The Government is proposing to eliminate the
need for individuals to apply for the credit and allow Canada Revenue Agency to
automatically determine if an individual is eligible to receive the credit.
We will be providing more information on these measures as well as other budget
measures tomorrow.
If you have questions on the budget, please contact your Crowe MacKay representative.