Personal Tax News: Check Out Changes for Medical Expenses, Donations and Taxation of Trusts

Several interesting provisions were tabled in this budget, most notably a change to the way taxpayers apply for the Goods and Services Tax Credit.

Applying for the Goods and Services Tax Credit (GSTC)

Beginning in 2014, taxpayers will no longer be required to apply to receive the GSTC. The government will issue notices of determination to those qualify for the credit. Those who do not qualify will not receive a notice, but may request one. For couples, the spouse whose return is assessed first will be awarded the credit if the couple qualifies. In order to qualify, CRA must know the individual’s net income for the year so this will not eliminate the need to file a return to get the GSTC.

Adoption Tax Credit

The Adoption Tax Credit maximum will increase in 2014 from $11,774 to $15,000 for each eligible child starting in 2014.

Medical Expenses

Beginning in 2014, the following new expenses will qualify for the Medical Expenses Tax Credit:

• the cost of designing an individual therapy plan for disabled taxpayers if the therapy would be eligible and the plan is prescribed by a medical practitioner or the plan is required to access public funding.
• the cost of service animals to help an individual manage severe diabetes, including the cost of care and maintenance of the animal and the cost of travel for the individual to attend a facility that trains such animals

Donations at Death

For donations made in the deceased’s will after 2015, the donation will no longer be deemed to have been made by the individual immediately prior to their death but will be deemed to have been made by the estate at the time the donation is transferred to the qualified donee. The trustee may allocate the donation to

• The estate for the year in which the donation was made,
• An earlier taxation year of the estate, or
• The last two taxation years of the deceased.

Donations of Ecologically Sensitive Land

Credits for the donation of ecologically sensitive land made after February 11, 2014 may be carried forward up to ten years (five years for donations prior to that date).

Donations of Cultural Property

The current exemption to the rule that the value of a gift may not be greater than the cost of the gift to the donor will no longer apply to gifts of cultural property after February 11, 2014 if the gift is acquired as part of a tax shelter gifting arrangement.

Search and Rescue Volunteer Tax Credit

A new tax credit for search and rescue volunteers will be available beginning in 2014. The rules are substantially the same as the current tax credit for volunteer firefighters. Like the volunteer firefighters tax credit, at least 200 hours of service is required and if the credit is claimed, any currently-exempted remuneration must be included in income.

In order to claim the credit, volunteers must have written certification from a team president, or other individual who fulfills a similar role, of an eligible search and rescue organization confirming the number of hours of eligible volunteer search and rescue services performed. Eligible search and rescue organizations will include search and rescue organizations that are members of

• the Search and Rescue Volunteer Association of Canada,
• the Civil Air Search and Rescue Association,
• the Canadian Coast Guard Auxiliary,
• other organizations whose status as a search and rescue organization is recognized by a provincial, municipal or public authority.

Mineral Exploration Tax Credit for Flow-Through Investors

The tax credit will be extended another year so that investments until the end of March 2015 will be eligible for the flow-through credit for exploration expenses to the end of 2016.

Farming and Fishing Business Rollovers

The current rollover provisions that allow for the transfer of a family farm or family fishing business to a family member will be extended to apply to a business that is a combination of farming and fishing. This change is effective for transfers that occur in 2014 or subsequent years.

Tax Deferral for Farmers

The current provision for the deferral of the taxation on the proceeds from the disposition of breeding livestock due to flood or drought conditions will be extended to bees and horses that are over 12 months of age if these animals are kept for breeding purposes.

RRSP Contributions by Amateur Athletes

Amateur athletes who contribute to an amateur athlete trust and exclude the contribution from their income in the year of contribution will be able to have that income treated as earned income for RRSP purposes for contributions beginning in 2014.  In addition, amateur athletes who contributed in 2011, 2012, or 2013 may file an election (before March 2, 2015) to have those contributions treated as earned income for RRSP purposes.

Pension Transfer Limits

Effective for 2012 and subsequent years, the existing rule that allowed the maximum amount for RPP transfers from an insolvent employer to ignore the effects of underfunding will be extended to allow for transfers from an RPP (other than an IPP).  This new treatment will be available where the reduction in the estimated pension benefit that results in the reduced commutation payment is approved, pursuant to the applicable pension benefits standards legislation; or if the payment is from an IPP, where the plan is being wound up and the commutation payment is the last payment made to the plan.

Tax on Split Income

The definition of “split income” is modified for 2014 and subsequent years to include any income that is paid or allocated directly or indirectly to a minor from a trust or partnership if that income is derived from rental or business income and a person related to the minor:

• is actively engaged on a regular basis in the activities of the trust or partnership to earn income from any business or rental property, or
• has, in the case of a partnership, an interest in the partnership (whether held directly or indirectly)

Taxation of Testamentary Trust

Beginning in 2016, the graduated tax rates currently available to testamentary trusts will only apply for the first three years of the trust. For testamentary trusts that continue beyond three years, the rate applied to income taxed in the trust will be the highest tax rate (currently 29% federally). An exception to this rule will occur in the case of trusts set up for people qualifying for the federal Disability Tax Credit.

Taxation of Non-Resident Trusts

For taxation years that end after budget day (February 11, 2014), if any contributions are made to a non-resident trust by a Canadian resident, that trust will be deemed to be resident in Canada. The 60-month exemption previously available to trusts where the contributors are new Canadian residents will continue but only if no new contributions are made to the trust after budget day.