Budget 2014: A client letter

Show clients you’re proactive by sending them this customizable letter about the Federal Budget.

Dear [Client/Prospect name],

As you know, Finance Minister Jim Flaherty delivered his federal budget on February 11 in Ottawa.

In case you haven’t had a chance to review the media coverage, I thought you would appreciate a quick overview.

Unlike prior years, 2014’s budget doesn’t have any major changes that impact the majority of Canadians. Ottawa did increase the adoption expense tax credit from $12,000 to $15,000. And there’s a new tax credit for search and rescue volunteers similar to the one for volunteer firefighters. Those with diabetes will also be able to claim their diabetes service animals.

But there are no major alterations of tax rates, or alterations to contribution rates for major programs like the RRSP, RESP, RDSP or TFSA.

You can read a synopsis of those changes here.

Still, for people with higher incomes, business owners and new Canadians, there are some targeted tax changes about which should be aware. They include:

Kiddie Tax Changes – These provisions have long targeted business owners who split income by paying dividends to minor children by taxing them at the highest marginal rates, rather than the lower ones available to kids.

This year’s budget widens the kiddie tax lens to include business and rental income earned through a trust or a partnership structure, so you’ll no longer be able to make a minor the beneficiary of a trust that earns income generated by the work of adult partners.

The change is effective immediately.

Graduated Tax Rates in Trusts – A long anticipated change eliminates graduated tax rates for testamentary trusts, which essentially allowed income splitting after death.

This is a major change that impacts estate planning for higher net worth Canadians, and the change takes effect in 2015.

If you’re thinking of doing some estate planning, it’s important to discuss options beyond these no-longer-available graduated tax rates, since there are numerous other ways to apply a testamentary trust.

Elimination of the Immigration Trust – Ottawa had long granted newly arrived Canadians to place money in offshore trusts for a period of five years at no tax.

In an unexpected move, the Finance minister announced that loophole has been closed, effective immediately.

Donations on Death Rule Changes – Current rules make a donation through a will claimable in the year of death and in the prior year. That changes in 2016 when the estate will be able to claim it for the year the gift is made, and any prior year.

Heirs also will retain the option of using the current system. For some, especially estates that remain open and continue to earn income, this option may add some flexibility at tax time.

Pension Transfer Limits – Starting 2011, Ottawa introduced relief for people who had to commute underfunded pensions to RRSPs, RRIFs or other savings vehicles. The 2014 budget extends that tax relief.

For more detail on these changes have a look at this story and have a listen to the associated podcast.

I hope you find these highlights useful. If you’d like to discuss these and other federal budget initiatives and how they affect your financial plan, please don’t hesitate to contact me.

Sincerely,

[Your signature]

[Your name]

(02/12/14)