INDEPTH: BUDGET 2005|
CBC News Online | Updated April 27, 2005
[Note: On April 26, the Liberals and New Democrats reached an agreement-in-principle that the Liberal minority government will make changes to its 2005 budget in exchange for NDP support. The changes can be found here.]
Personal tax exemptions, RRSP limits changed
Finance Minister Ralph Goodale
Finance Minister Ralph Goodale used his second budget to unveil plans to increase the amount of money that Canadians will be able to earn tax free.
Goodale's plan calls for the basic personal deduction on income to rise to $10,000 by 2009. The deduction level for 2004 is $8,012.
The federal government said the basic personal exemption would increase by $100 in 2006, another $100 in 2007, $400 in 2008 and $600 in 2009.
"When fully implemented, this measure will remove from the tax rolls more than 860,000 of Canada's lowest-income taxpayers," Goodale said in his budget address.
"This includes almost a quarter of a million seniors," he added.
Because they form a minority government, the Liberals need the support of the opposition parties to pass the budget. Increasing the basic personal deduction may meet the call for tax cuts from the Conservatives, while also fulfilling the New Democrats' demands for help for low-income earners.
Also part of Wednesday's budget is an increase in the deductions for dependants. The basic deductions that Canadians will be able to claim for a dependent spouse or common-law partner, or a wholly-dependent relative will go up from $6,803 in 2004 to $8,500 in 2009.
Ottawa estimated the changes to the personal deductions will cost it more than $7 billion by the time they are fully in place.
Retirement savings limits raised
Goodale also said the annual contribution limit on registered retirement savings plans (RRSPs) will rise from $16,500 in 2005 to $22,000 by 2010. Similarly, the contribution limits on registered pension plans (RPPs) will rise from $18,000 this year to $22,000 in 2009.
The finance minister also announced the immediate elimination of the 30 per cent foreign content limit on holdings in RRSPs and pension plans. The so-called Foreign Property Rule was originally imposed to provide Canadian companies with a cheap source of financing by keeping a percentage of pension and retirement savings inside the country's borders.
The 2000 budget increased the foreign content limit from 20 per cent to 30 per cent.
Goodale said eliminating the limit would allow Canadians greater diversification choices for their investments.
MORE: CHANGES TO GUARANTEED INCOME SUPPLEMENT
Low-income senior citizens will also see changes to the Guaranteed Income Supplement. Ottawa plans to increase the maximum monthly GIS by $36 for single seniors and by $58 for couples. Half the increase will go into effect on Jan. 1, 2006, with the remainder coming one year later.
Goodale claimed that 1.6 million seniors will benefit from the change.
Ottawa also said it will double the amount of medical and disability expenses that the caregivers of elderly parents or disabled adult children will be allowed to claim – from $5,000 to $10,000, effective this year.