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Federal Budget - Summary Of Proposed Changes

March 20, 2007

The anticipated broad-based relief for capital gains tax did not materialize in Monday's federal budget; however, there were numerous proposed tax breaks that benefit families, seniors, and the disabled. According to experts at CIBC Global Asset Management Inc., this budget will be good for the Canadian economy, good for the Canadian dollar, and good for Canadian bonds.

We are pleased to provide you with some highlights of the budget, as well as a complete summary of the significant changes and CIBC Global Asset Management Inc.'s view of the effect on the Canadian markets and economy.

The age limit to convert Registered Retirement Savings Plans (RRSP) to Registered Retirement Income Funds has been extended to age 71. Individuals will have an additional two years before they must make minimum withdrawals from their retirement plans. This change also applies to Registered Pension Plans and Deferred Profit Sharing Plans, where annuity payments may be deferred until the end of the year in which the payment recipient reaches age 71.
Registered Education Savings Plans (RESP) were also enhanced, with the proposed elimination of the annual RESP contribution limit of $4,000 and the lifetime RESP contribution limit for each beneficiary being increased to $50,000 from $42,000. As well, the annual maximum Canada Education Savings Grant (CESG) will be increased to $500 from $400. Therefore, the first $2,500 of RESP contributions in a year will be CESG eligible.
Some changes to capital gains taxes were proposed. The lifetime capital gains exemption would increase to $750,000 from $500,000; however, the budget does not propose any changes to the types of property eligible for exemption, which currently includes qualified farm and fishing property and qualified small business corporation shares. In addition, capital gains tax will no longer be applicable on donations of publicly-traded securities to a private foundation.
Registered Disability Savings Plans (RDSP) will be a new savings vehicle, intended to provide for the financial security of persons with severe disabilities. Like RESPs, contributions will not be deductible and will not be taxable when withdrawn from the RDSP. Contributions will be subject to a lifetime maximum of $200,000.

Complete summary of proposed changes

Market Insight from CIBC Global Asset Management Inc.: Budget Boon To Bond Market

This information is provided for informational purposes only and is not intended to provide specific financial, investment, tax, legal or accounting advice to you, and should not be relied upon in that regard. This information has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy or completeness.