The personal tax regime received a boost in Tuesday’s federal budget with the creation of a brand new savings vehicle. But there were also a handful of more modest announcements that will affect individual taxpayers.
For one, the 2008 budget proposes to extend the list of expenses eligible for the Medical Expense Tax Credit. The METC provides tax relief equal to 15% of eligible medical and disability-related expenses in excess of a threshold.
The list has been expanded to include the costs to purchase, operate, and maintain:
> altered auditory feedback devices for the treatment of a speech disorder;
> electrotherapy devices for the treatment of a medical condition or a severe
mobility impairment;
> standing devices for standing therapy in the treatment of a severe mobility
impairment; and
> pressure pulse therapy devices for the treatment of a balance disorder.
In addition, the budget proposes to extend eligibility under the METC to recognize eligible expenses for service animals that are specially trained to assist an individual who is severely affected by autism or epilepsy to cope with the individual’s impairment.
The federal budget also seeks to clarify the METC provisions regarding the eligibility of drugs and medications. Currently, drugs, medications and other preparations are eligible for the METC when they are both prescribed by a recognized medical practitioner (or a dentist) and recorded by a pharmacist. However, recent court decisions have interpreted this measure to include, in some cases, the cost of vitamins, supplements and drugs that could otherwise be purchased without a prescription. Such an interpretation goes beyond the policy intent of the METC. This year’s federal budget proposes to clarify the wording for eligible drugs and medications to ensure that those that may be purchased without a prescription remain ineligible.
The additions to the list of eligible expenses for the METC will be effective for the 2008 and subsequent taxation years. The clarification in respect of eligible drugs and medications will be effective for expenses incurred after Feb. 26.
Additionally, the federal government announced that it continues to work with financial institutions to put the necessary administrative mechanisms in place to allow them to offer a registered disability savings plan, which was first announced in the 2007 budget, with the objective that plans be made available in 2008.
The dividend tax credit is being tweaked in response to the planned corporate income tax reductions that were announced in the fall economic statement. The current 45% gross up is being reduced to 44% in 2010, 41% in 2011 and 38% in 2012 to reflect the planned reduction in corporate rates from 19% down to 15% by 2012.
The government is also proposing to extend the existing capital gains tax exemption for publicly traded securities to include exchangeable securities (unlisted securities that are exchanged for publicly-traded securities), subject to certain conditions.
And the budget proposes to increase the deductions available to northern Canadian residents by 10%, with the changes applying to 2008 and subsequent taxation years.
Currently, individuals who live in prescribed areas in Northern Canada for at least six consecutive months beginning or ending in a taxation year can claim the northern residents’ deductions in computing their taxable income for that year.
The northern residents’ deductions provide taxpayers with a basic residency deduction to each member of a household of up to $7.50 per day. Alternatively, one member of a household can claim a maximum of $15 per day if no other member of the household claims this basic amount (including situations in which there is no other member of the household.) The budget proposes increasing these maximum deductions to $8.25 and $16.50, respectively.