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2015 Federal budget: key points for investors

Angela Iermieri
Financial Planner
for Desjardins
Financial Services Firm Inc.

Among the tax measures proposed in the 2015 federal budget, here are 3 changes that will interest investors and entrepreneurs.

1. Increased TFSA annual limit

When introduced in 2009, the annual Tax-Free Savings Account (TFSA) contribution limit was set at $ 5,000. This ceiling was to be indexed to inflation in $ 500 increments. In 2013, the annual limit was increased to $ 5,500. And now, the 2015 budget proposes to increase the annual contribution limit to $ 10,000. This increase will apply from January 1st 2015 and to subsequent years, without future indexation.

All Canadians aged 18 and over will be able to invest tax-free $ 10,000 annually. Important fact, the contribution limit is cumulative, so if you do not contribute the most of your limit, you can do so another year, when you will have the available funds.

The TFSA allows you to grow your money tax-free and to make non-taxable withdrawals.

2. Changes to the RRIF

Your RRSP must be converted to a Registered Retirement Income Fund (RRIF) by the end of the year you turn 71. This implies that you will have to, starting the following year (at age72), withdraw gradually a minimum annual taxable amount. The 2015 budget proposes to reduce the mandatory minimum withdrawals and allow retirees aged 71 to 94 to preserve their tax sheltered savings longer. For example, currently the first year withdrawal rate is 7.38% of the total value of the RRIF, this rate would be reduced to 5.28%.

This calculation has been revised, taking into account factors such as the long-term portfolio yield and the expected inflation, to allow retirees to keep their RRIF capital longer, and thus provide an income to a later age.

3. Lower tax rate for small businesses.

Small businesses will benefit from a reduction in their tax rate. This rate will decrease by 0.5% per year starting in 2016 to reach 9% in 2019, down from 11% currently.