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Changes are pending RDSPsto
Registered Disability Saving Plans (RDSPs) are tax-deferred accounts available to taxpayers who qualify for the Disability Tax Credit. The government matches RDSP contributions with grants and bonds.
It is relatively easy to open an RDSP for a minor child. However, a taxpayer of legal age and legally incompetent will need a legal representative or guardian to open an RDSP on their behalf. This cumbersome process can prevent some people from benefiting from the account.
Since 2012, eligible family members, namely a parent, spouse, or domestic partner of the person with disabilities can open an RDSP for a beneficiary who has no legal representative. This temporary measure is scheduled to expire on December 31, 2023 and the budget proposes extending the deadline to December 31, 2026. The government also intends to extend the qualifying family member provision to adult siblings of the RDSP beneficiary.
An RDSP can offer a return on contributions of up to 300% when you consider appropriate grants and bonds from the federal government, plus more from provincial and territorial incentives. The account also grows tax-deferred, and future withdrawals don’t affect the government’s means-tested benefit calculation. As a result, the RDSP is a fantastic savings tool for a person with disabilities. Extending the temporary measure and expanding the people who can open an RDSP account could help many more people to benefit.
Capital Gains Tax reforms? Not this year
Once again, some commentators were anticipating an increase in the capital gains eligibility ratio, which has stood at 50% since 2000. Despite the speculation, the taxable portion of a capital gain remains unchanged. Half of a capital gain thus remains tax-free.
But some changes to the alternative minimum tax for high earners
The Alternative Minimum Tax (AMT) system currently in force in Canada applies an alternative tax calculation to a taxpayer’s income. The formula adds certain tax deductions, credits, and exemptions, and applies a flat tax rate to determine if the actual tax payable is less than the alternative calculation. If this is the case, the taxpayer must instead pay the AMT for the year.
In principle, the tax can be carried forward for up to seven years and claimed in a subsequent year. Basically, the AMT is designed to discourage taxpayers from claiming too many tax-deferred items, especially in multiple years.
The Budget has proposed raising the federal AMT rate from 15% to 20.5%, raising the minimum tax payable. It will also expand additions for certain deductions, including labor costs, interest and transfer fees, limited partnership losses, and non-principal loss carryforwards. Only 50% of the non-refundable tax credit is calculated for the AMT and 100% of the dividend tax credit is excluded. A percentage of capital gains, stock option income and capital gains on donated securities are added back to income in the new AMT calculation.