What’s New in 2020?

With the election of a minority Liberal government in October 2019, there were a number of announcements in the December 2019 Federal Budget. Here is brief, though not an exhaustive, point-form summary:

• The basic personal amount is set to rise annually with inflation from the current level of $12,069 in 2019. The basic personal amount will increase by 15% over the next four years, reaching $15,000 in 2023. Not everyone will benefit from this change. Canadians who earn more than $147,667 will have the basic personal amount reduced, and those who earn more than $210,371 will not receive any tax break at all for the basic personal amount.
  
  
• For the tax year 2020, the maximum limit for RRSP contributions will still be 18% of your earned income in the previous year; however, the dollar maximum has increased to $27,230.
  
  
• TFSA annual contribution limits remain at $6,000 for 2020. The total amount one could have contributed since the start of the program in 2009 is now $69,500.

• Prior to the Federal Budget, if an employee had stock options, they could claim a deduction of 50% of the stock option benefits when the option was exercised, resulting in a similar tax treatment to capital gains. The new rules will put an annual limit of $200,000 on an employee’s stock options for any employee who is part of a “large, long-established” business. The limit will be based on the fair market value of the employee’s stock options when the shares are granted. This change brings Canada’s tax treatment more in line with the U.S.

• The Home Buyers’ Plan (HBP), which helps first time homebuyers save for a down payment by allowing them to access RRSP funds, has been increased to $35,000 from $25,000.

• To provide Canadians with greater flexibility in managing their retirement savings, two new types of annuities will be permitted under the tax rules for certain registered plans:
  • Purchases of advanced life deferred annuities will be permitted from a RRSP, RRIF, Deferred Profit Share Plans (DPSP), Pooled Registered Pension Plans (PRPP), and Defined Contribution Plans (DCP)
  • Variable payment life annuities will be permitted under a PRPP and DCP

• After 2020, there will no longer be a requirement to close a Registered Disability Savings Plan (RDSP) (or obtain a letter from a medical practitioner that you’re likely to be eligible for the DTC again later) if you are no longer eligible for the DTC today. As a transition rule, you don’t have to close the RDSP before the end of 2020 if you have ceased to be eligible for the DTC since the 2019 Federal Budget.

• If you purchase cannabis products for medical purposes, then you can, for costs incurred after Oct. 16, 2018, claim a medical expense tax credit (METC). You must be registered with an organization that holds a license to sell cannabis for medical purposes in order to claim the METC.

• Starting in 2020, eligible workers aged 25–65 will accumulate an education credit balance of $250 per year, up to a lifetime maximum of $5,000. Your credit balance can be claimed for up to one half of the costs of taking courses or enrolling in a training program.

Estate Planning Misconceptions

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