Tax Changes that May Affect You
By KPMG Peat Marwick Thorne
Among the proposals contained in the February 22, 1994 federal budget are changes to the Age Tax Credit and the elimination of the $100,000 lifetime capital gains exemption.
Age Tax Credit The nonrefundable age credit was previously available to anyone age 65 or older, regardless of the person’s income. For 1994 and subsequent years, the budget proposed that the age credit be income-adjusted. That is, the credit will be reduced by 15 percent of the individual’s net income in excess of $25,921. As a result, the credit will not be available to individuals whose income is greater than $49,100.
There is however a two year phase-in period. For 1994, the credit will be reduced by only 7.5 percent rather than 15 percent of net income greater than $25,921.
Capital Gains Exemption Prior to the February, 1994 federal budget, each individual resident in Canada was entitled to a $100,000 lifetime capital gains exemption. This exemption has now been eliminated for gains realized after February 22, 1994. However, any gains accrued up to February 22, 1994 may still be eligible for the exemption. In order to take advantage of the exemption, an individual must file an election using a Revenue Canada prescribed form which would be attached to his or her 1994 tax return by April 30, 1995.
Accordingly, if you own stocks, bonds, mutual funds, a cottage or any other appreciated capital property, you should consider filing this election. The election will allow an individual to utilize his or her available capital gains exemption by recognizing gains on capital property that have accrued to February 22, 1994. Generally speaking, the portion of the gain accrued after February 22, 1994 will be subject to tax when the property is ultimately sold.
For individuals who own more than one piece of real estate, e.g. a principal residence and a cottage, the rules are more complicated. Under the new rules, capital gains on a principal residence will continue to be received tax free. Since gains accruing on real estate after February 29, 1992 are not eligible for offset by the capital gains exemption, only gains accrued to that date may be eligible for a partial exemption if included in the election.
You should consult with your personal tax advisor in order to find out how and whether the above legislative changes specifically affect you.