Samantha Gowers

Samantha Gowers

What is the federal budget, and how will this year’s budget affect you? The Federal Budget is presented annually to identify planned government spending, expected revenue and addresses any changes to taxes and programs. With the 2015 budget announcement, there were a lot of changes that will impact Canadian’s of all ages, though some may feel the changes more than others.

There isn’t much in the budget for Gen X or Y who don’t have children, and there is little help for the burden of housing costs and tuition. The main impact of the changes will be felt by seniors, those who have money to invest in RRSP’s and TFSA’s, and single parent families or families with young children, who will see the universal child care benefit increased to $1,920/y for each child under the age of 6 and the introduction of a benefit of $720/y for aged 6-17.

The modification that will be felt most commonly is the increase in the annual contribution limit for Tax Free Savings Accounts. Previously, you could accumulate $5,500 per year in new contribution room which would add to your maximum allowable deposits across any TFSA’s you held, and these contributions are not tax deductible but income grows tax-free and any withdrawals are tax free. They have not changed the rules surrounding TFSA’s, which means they are still a great savings vehicle for short and long term needs (saving for a home, tax free income in retirement, etc.), but the contribution limit has been raised to $10,000 per year.  If you were 18 years or older when they were introduced in 2009, you can now hold up to $41,000 in a TFSA without penalty.

They also recognized that people are living longer and outliving their savings, especially after the 2008 recession. The 2015 Budget “relaxes” requirements around Registered Retirement Income Fund withdrawals (a matured Registered Retirement Savings Plan), reducing the minimum withdrawal amount from 7.38% to 5.28% annually in the beginning of retirement. This will allow seniors to draw their retirement income out over a longer period of time, which is especially beneficial for those with high savings amounts. It will also help alleviate some of the claw backs against OAS that results from elevated incomes created by the previous withdrawal requirements. The minimum limit will still increase every year thereafter, but with a lower starting limit and higher TFSA contribution limits; there is a lot more flexibility to manage your savings in retirement in a tax-efficient manner. Seniors will also be benefiting from a Home Accessibility Tax Credit available to those who are 65+, or disabled, which credits 15% up to $10,000 of costs associated with making your home more accessible.

Overall, there are improvements to the budget that affect everyone in some way – whether it is in the short or long term, but these improvements will be felt mostly by those who are taking advantage of the savings vehicles available to them, those with growing families, and the aging population.