On March 19, 2007 The Honourable Jim Flaherty, Minister of Finance, tabled the 2007 federal budget. Here are just a few of the items that we feel are critical for the average Canadian citizen. They propose to increase the mandatory age to convert your Registered Retirement Savings Plan (RRSP) to a Registered Retirement Income Fund (RRIF) to 71 from 69.You now have an additional two years of tax deferral. Also, you can make additional RRSP contributions, subject to having a contribution limit up to age 71.

Two major changes are proposed to the existing Registered Education Saving Plan. They will eliminate the $4,000 annual limit and increase the lifetime limit to $50,000 from the current $42,000. The Canadian Education Savings Grant (CESG) is increasing to 20% of $2,500 from the current 20% of $2,000. The maximum CESG will now be $500 instead of $400. If you have a carry forward grant available you can now top up to $5,000 and receive a full $1,000 grant. The lifetime grant remains at $7,200. One final note on education initiatives is that this year’s budget has fully exempted scholarships and bursaries from taxation.

The government has introduced a new program to assist families to save for the financial security of children with disabilities. The Registered Disability Savings Plan (RDSP) will be fashioned after the RESP rules. Contributions will not be tax deductible, however earnings and growth will accrue tax-free. The lifetime contribution limit will be $200,000 with no annual limit. The age limit is 59. The grant portion of this program, called the Canada Disability Savings Grant (CDSG), will be income tested, and is 100% on the first $1,000 contributed for families with net family income of more than $74,357. For families with net family income below $74,357, the grant will be 300% on the first $500 and 200% on the next $1,000 contributed. There is also a Canada Disability Savings Bond (CDSB) of up to $1,000 available for families with low and modest incomes.

The budget proposes to increase the lifetime capital gains exemption to $750,000 from the current $500,000. This exemption relates to the sale of qualified small business shares, farming and fishing property. A big disappointment was that there was no broad-based capital gains tax relief or deferral on reinvestment of proceeds within six months, as was promised during the Conservative election campaign.

Finally, the 2007 budget proposes to increase the instalment threshold from $2,000 to $3,000. You will no longer be asked to make instalment tax payments as long as your income tax owing is less than $3,000.

Please speak to your financial advisor for further clarification on these and other budget announcements.

This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of Fundex Investments with your topics of interest at 798-2421 or E-mail at rick@invested-interest.ca.