April 24, 2015
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The Finance Minister of Canada, Joe Olivers, introduced the federal budget for 2015 on Tuesday. With only six months left for the next elections, this budget offers attractive tax breaks to targeted voters and puts the country’s finances back into a small surplus from a previous deficit. The country has posted a surplus after seven consecutive years of deficit. This year’s surplus will be only $1.4 Billion and won’t grow rapidly in future years- as promised previously by the conservative government. The surplus could also be explained by the fact that the usual $3 Billion reserve fund is now reduced to only $1 Billion. But the main highlight of this year’s budget could be the increase in Tax Free Savings Account (TFSA) contribution limit. TFSA contribution limits weren’t doubled as many people expected but it was increased by 82%, from $5,500 to $10,000. To clear the confusion regarding when can people start making extra contribution for 2015, the Canada Revenue Agency (CRA) issued a formal statement confirming that Canadians can immediately contribute to the new limit for their TFSA. While the previous limit of $5,500 was indexed with inflation, climbing in the multiples of $500, the new limit will no longer be indexed with inflation and will stay at $10,000. According to Joe Olivers “Close to 11 million Canadians- mostly low and middle income Canadians- have opened a TFSA.” According to government’s estimates, the increased limit will cost the treasury $85 Million in the current year and jumping to $360 Million by 2019. There were also some changes to minimum RRIF withdrawal limit in the federal budget. By the age of 71, Canadians must convert their RRSPs into a registered retirement income fund (RRIF), which draws money annually. The previous minimum limit for withdrawal was 7.38% and increasing to 20% by the age of 94 but its now reduced to 5.28% and escalating to 18.79% by the age of 94. This change in RRIF withdrawal limit is going to cost the government around $670 Million over the next five years. The government is trying to pursue voters by offering some attractive tax breaks but whether voters are really impressed by their work or not, will be clear after six months during next elections.
Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch