Federal Budget 2009 introduced specific tax measures geared towards lower and middle-income Canadians as well as several key incentives for individuals and small business owners to stimulate spending, particularly on the home front. The focus of this report is to outline a few key elements of the 2009 Budget as they relate to personal and small business tax announcements.

GENERAL PERSONAL TAX CHANGES

Basic personal / spousal / partner amount
The “basic personal amount” is the amount of income that an individual can earn before paying any federal income tax. The 2009 federal budget proposes to increase the basic personal amount, which is also used for the spousal and partner amounts, by 7.5% to $10,320 in 2009 from $9,600 in 2008.

Personal tax brackets
To provide broad-based tax relief, especially for lower and middle-income individuals, the upper personal tax limits of both the first and second tax brackets are proposed to be increased by 7.5%. The table below shows the new 2009 (proposed) vs. 2008 tax brackets:

Although the change is retroactive to January 1, 2009, employees who have taxes deducted at source likely won’t see the benefit of these tax reductions until after the new payroll tables are utilized by their employers for pay periods ending after July 1, 2009.

TAX MEASURES TO SUPPORT HOMEOWNERS

The 2009 Budget introduced three positive tax changes to support home ownership: the new Home Renovation Tax Credit, the new First-Time Home Buyers’ Tax Credit and improvements to the existing Home Buyers’ Plan.

Introduction of a Temporary Home Renovation Tax Credit
Perhaps the most exciting personal tax measure for many Canadians will be the introduction of the new temporary (after January 27, 2009 and before February 1, 2010) Home Renovation Tax Credit (HRTC).

According to the government, the purpose of the new HRTC is to “stimulate economic growth and encourage Canadians to invest in improvements to their homes.” For 2009 only, individuals will be able to claim a 15% non-refundable tax credit for eligible expenditures made in respect of their homes.

The credit applies to any expenditures above $1,000 and up to $10,000. As a result, the value of this new federal credit is equal to a maximum of $1,350 ([$10,000 - $1,000] X 15%). Only expenditures made after January 27, 2009 and before February 1, 2010, will be eligible for the 2009 credit. Since the purpose of the credit is to stimulate new renovations not previously contemplated, it won’t be available if the expenditure is made pursuant to an agreement entered into before January 28, 2009.

First-Time Home Buyers’ Tax Credit
There is also a new proposed non-refundable tax credit based on a $5,000 amount for “first-time home buyers” who to purchase or construct a new home after January 27, 2009. For the purposes of this credit, an individual will be considered a first-time home buyer if neither the individual nor his or her spouse or partner owned and lived in another home in the calendar year of purchase or any of the four preceding calendar years.

Home Buyers’ Plan
The federal Home Buyers’ Plan (HBP) currently allows a first-time home buyer to withdraw up to $20,000 from his or her RRSP to purchase or construct a new home without having to pay tax on that withdrawal. The Budget proposes to increase the maximum amount that can be withdrawn to $25,000 for RRSP withdrawals under the HBP made after January 27, 2009.

SMALL BUSINESS TAX CHANGES

Small Business Limit
The small business deduction allows private corporations to pay a low rate of federal tax (11%) on the first $400,000 of annual active (non-investment) business income. The 2009 federal Budget proposes to increase this amount, generally known as the “small business limit,” to $500,000, effective January 1, 2009.

Computers: Accelerated Tax Depreciation
To encourage investment by businesses in computer systems and related peripherals, the 2009 Budget proposes a temporary 100% tax depreciation rate for eligible computers and software acquired after January 27, 2009 and before February 2011.

Click here to download a PDF of the 2009 Federal Budget