The budget of a government, although expected in the media, rarely arouses passions in the cottages. The first normal budget exercises post-pandemic, the federal and provincial budgets have attracted more attention this year.
It must be said that they were carried out in a complex economic context combining a slowdown in growth and a level of inflation that is still worrying. Far be it from me to give you my opinion on these budgets — the ink has already flowed abundantly among the columnists. I prefer to highlight here the announcements that will have the most direct impact on your finances.
On the Quebec side
The most important element of the Girard budget is its generalized tax cuts. The first two tax brackets will benefit from a 1% tax reduction from 2023, which affects the first $98,540 earned by taxpayers. If you are required to pay installments, you can now adjust them accordingly. Source deductions made by the employer will be modified on 1er next July.
Follows the modernization of the Quebec Pension Plan (QPP). To promote the retention of experienced workers, the law will allow workers aged 65 or over to contribute or not to the QPP. This choice may be made once a year and will also exempt the employer from making a contribution.
Another central point of this modernization is to ensure that people aged 65 and over who decide (or more often who must) work part-time to meet their needs are not disadvantaged. Thus, for these people, years of low earnings will no longer reduce the average pensionable earnings. Finally, the maximum age for postponing the pension goes from 70 to 72 years, and it is from the age of 72 that workers will no longer have the obligation to contribute to the scheme.
There are additional changes for shareholders of labour-sponsored funds. Currently, they must hold their shares for a minimum period of 730 days before redeeming them. Since subscription to these shares is accompanied by a non-refundable tax credit, changes will be made to help achieve the program’s economic development objectives.
The minimum holding period will thus be gradually extended to reach five years in 2026. A new rule will limit access to the generous 15% non-refundable tax credit in order to favor taxpayers who need savings the most. More specifically, you will no longer have access to it if your taxable income is subject to the highest tax rate of the tax table ($112,665).
Quebec has also thought of investors in cryptoassets. When a transaction including a virtual asset generates a tax impact, the taxpayer must already declare it to the tax authorities. Taking note of the enthusiasm for these virtual currencies, the Girard budget will allow the Minister of Revenue to ask taxpayers if they have such assets and will require them to declare all their transactions.
On the federal side
The Freeland budget increased the withdrawal limit for Registered Education Savings Plans (RESPs). Currently, withdrawals are limited to $5,000 in the first year the child becomes eligible. The cap will increase to $8,000 to help families cope with the rising cost of living. If you have already withdrawn $5,000, you will be able to withdraw an additional $3,000 as soon as the budget is adopted. The amounts increase from $2,500 to $4,000 for part-time students. Whether or not you need this first withdrawal, it is worth considering withdrawing it and using the capital to contribute to the RESP of your youngest. Also note that it will now be possible for separated parents to jointly open an RESP.
The Alternative Minimum Tax (AMT) is aimed at taxpayers with higher incomes and consists of a parallel tax calculation aimed at limiting the misuse of many deductions in order to lower the tax rate. Taxpayers will have to pay the higher of the two taxes between the IMR and the normal tax. Changes have been announced to raise this tax from 15% to 20.5%. The basic alternative minimum tax exemption is increased from $40,000 to $173,000. Thus, fewer taxpayers will be affected by the measure while being taxed more. In any case, remember that a taxpayer can be reimbursed the AMT over a period of seven years.
Changes to Bill C-208 will impact your wallet if you are planning an intergenerational business transfer. Conditions will be added from 1er January 2024 to ensure that only real intergenerational transfers are excluded from the application of section 84.1. Consult your tax specialist.
Minister Freeland has also provided a boost for low-income Canadians. People already receiving the GST credit will be offered a one-time grocery rebate of $153 for an adult, $81 for a child and $234 for a single person. Taxpayers with very low incomes will be eligible for automatic filing of their income tax return to make it easier for them to access government services and programs.
The creation of a Registered Disability Savings Plan (RDSP) will also be facilitated to better ensure the financial security of individuals benefiting from the disability tax credit. The budget proposes to continue the temporary measure that allows an eligible family member to open the plan for people whose capacity to enter into a contract is in doubt. The definition of a family member now allows for the inclusion of brothers and sisters, in addition to parents, spouses and common-law partners, in order to facilitate access to the plan.
Obviously, this is only a quick overview of various complex measures, some of which deserve a deeper analysis. Your financial, accounting and tax experts will be able to answer your additional questions.