Nicole Ewing, VP, Tax and Estate Planner, TD Wealth, speaks with Kim Parlee about what the 2019 federal budget could mean for home affordability, registered disability savings plan, and stock options tax treatment.
The federal budget has been released. And I was just speaking with an economist who said there's a little bit for everybody in this budget. So we're here to get the personal finance perspective of what it might mean from a tax and estate planning.
We're joined by Nicole Ewing. She is Business Succession and Tax and Estate Planner at TD Wealth. And she joins us from Ottawa. Nicole, I want to start with-- we'll get into some of the details of what came out in this budget. But overall, what was your take?
This is a big budget. There is a lot in there for everyone. So it doesn't matter who you are. There will be something of interest to you in this budget.
Well, let's start off with then some of those things that are in there. There seemed to be a lot for the housing market and homebuyers, and especially a first-time homebuyer. What did you see?
So a number of things there-- we have the first-time homebuyers incentive, where you have CMHC essentially offering a shared equity mortgage with the homeowners. We also have an increase to the amount. So everyone knows we're able to use RSPs, take $25,000 of those funds out of the RSP and use that towards a home without having an immediate tax impact. That's being increased to $35,000.
What I thought was very interesting, as well, is that it's going to be expanded to not just first-time owners now, but also to those who have had a marital breakdown or a common law spouse, a separation of those relationships-- so expanding the offering to them as well.
So just so I understand, so what they're proposing, and again, this is all pending-- of course, they have to be re-elected to actually have this budget go into place-- but for couples, if there's a breakdown, that allows someone, basically, to start again, access their RSP to buy a new home for themselves?
Exactly. Exactly. We'll need to wait to see what those details are. But that seems to be what's being proposed.
I notice in here some changes, as well, for registered disability savings plan. Take us through that.
So in order to qualify for a Registered Disability Savings Plans-- and so your RDSP-- you need to qualify for the disability tax credit. And as anybody who's gone through that process knows, this is a-- it can be a challenging process. You need to consult with a doctor and have medical forms completed.
If you have the type of disability where you're-- you may qualify one year and not the next, that would impact your ability to use the RDSP. And so currently, you would require-- you can apply for an extension, essentially, to allow that RDSP to stay open for up to four years. That is-- the requirement to apply for that extension is going to be removed. And it's also no longer going to require the medical professional to sign off that this is a disability that is likely to reoccur as well.
That's nice, I think, for people who are, obviously, having some hardship to not have to do that administration constantly. I think is-- it sounds like a good thing.
I know it wasn't too long ago when you and I were talking about in 2016, there were some changes for small business owners around the CCPC. Tell us a bit more about what's being proposed in this budget.
Well, this is particularly for farmers and fishermen. So this is-- there's been a number of changes that we've all seen in the last few years. But in 2016, there was a change to essentially prevent the inappropriate multiplication of access to the small business deduction.
So the small business deduction, $500,000, any active business income earned up to $500,000-- you benefit from a lower tax rate. And there's a number of rules in place to ensure that that's not inappropriately that-- multiplied so that, essentially, one individual, a group of individuals, has access to that.
Now, the changes-- there are certain definitions that came out in 2016 that impacted farmers in particular and the fishermen in particular that would have seen some of those-- what we would have thought otherwise-- the income would have been able to qualify for the small business rate-- didn't. And so the rules are being adjusted at this point to allow that as long as the income is earned from an arm's-length sale, it will be included.
Now, a couple other changes that may not be as well received-- it looks as though, from a Bay Street perspective, employee stock options-- there's a cap being put in place in terms of how you can treat them from a tax perspective.
Right. And this has been-- stock options have been on the table for a long time. And there's been a lot of discussion about that. And the main challenge to change is typically going to be the startups and your tech. And we didn't want to-- or didn't want to see those businesses dampened by not allowing stock options, which is an important consideration. But what this change today is proposing is a-- for those large, long-established corporations, that there will be a cap at $200,000 for that preferential treatment of stock options.
Individual pension plans-- what is being proposed here?
So IPPs-- this is a form of savings, defined benefit savings, for owner-managers. And there are limitations, of course, in terms of how much you're able to contribute and if you worked for one company, if you could transfer those years of service to another company.
There's been some planning that essentially allowed high income earners to get a full deferral of tax by transferring funds into a new IPP different than the treatment you would have gotten had you transferred to an RSP, for example. So these rules are going to essentially impact that type of planning and reduce the ability to do that transfer of pensionable time.
Finally, and again, some of the-- I'll say it's some of the top changes. There's more in there, too. But one more real estate piece-- there's an interesting thing here about the change of use of homes. If somebody has a property that they change from commercial or change back to personal, there were tax implications before. They're changing a bit, I think being a little more generous in terms of allowing people to figure out when it's classified as a sale.
Right. Right. So when we change the use of a property-- so if we go from it being my principal residence to I move out and I'm now renting that property, that would be a deemed disposition for tax purposes and typically, a taxable event once we change the use, and vice versa. If I transfer it from a rental into my living there, this is a deemed disposition, a triggerable event.
Now, when we talk about multi-use properties, if we had changed the use of the entire property, then we're able to defer the recognition of that event until some time in the future. Where you weren't able to do that was where you had a partial change of use-- so a duplex, for example, where I'm moving into one side of it, but the other side is going to continue to be a rental property. I didn't have the election to defer that taxable event. I didn't have the option of triggering that. So this is to equalize those two treatments. So whether you are doing a full change or just a partial change of use, you will now have the same tax treatment going forward.
And the last thing, I guess, people should keep in mind-- this is a proposal. This is not a budget that goes into place immediately. They have to be elected for this to go into place.
That's right. And some of these changes are being proposed to be effective immediately. And others are proposed to take impact after the results of the election.
Nicole, always great to talk to you. Thanks so much.
You're welcome, Kim.