On Thursday March 4, 2010, Federal Finance Minister Jim Flaherty tabled his government’s fifth budget entitled Canada’s Economic Action Plan - Year 2. Given the strong fiscal stimuli of the last couple of years, it is no surprise that this year’s budget is far more muted.

The ballooning budget deficit is front and centre in most people’s minds and the budget began to address the situation. Although the government has planned $19 Billion in new federal spending, at the same time as there will be $17.6 Billion in targeted reductions over the next five years. Government projections predict that the deficit will be essentially eliminated in five years. This is a contrast to the 2009 budget which had predicted a surplus in 2013-14. However, this is assuming that all the forecasts are correct, which is, of course, a very speculative exercise. On the personal level, the budget was pretty much ‘stay the course’ with few new tax initiatives.

Here are a few points of interest:

The government has improved the taxation of the Universal Child Care Benefit (UCCB). In the past there was an unfair treatment toward single-parent families. In two-parent families the benefit was taxed in the hands of the lower income parent who often had little taxable income. The budget proposes that single-parents can choose to take the UCCB benefit into his or her income or to include it in the income of the dependent. Since eligible dependents often have no income, this should be comparable to the situation with a two-parent family.

There are changes coming to Registered Disability Savings Plans (RDSP). The budget proposes to allow a 10-year carry forward of the Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs). The carry forward will be available starting in 2011. This means that a contributor can in effect ‘catch up’ on the grants for previous years when contributions were not made. Under the current program, the grants are provided on a year by year basis. The budget also proposes to allow the rollover of a deceased individual’s RRSP into the RDSP of a financially dependent infirm child or grandchild.

The tax loophole on Employee Stock Options will be closed effective March 4, 2010. It will no longer be possible for employees to take a 50% deduction and the employer to take a 100% deduction on the payment in ‘cash-out’ situations. This is where stocks are not actually issued, but the employer provides cash representing the gain on the stock directly to the employee. This clearly goes against the spirit of the law, so the budget is proposing to remove the ability of both parties to take deductions on the same transaction.

Prior to the budget, Canadian residents who received US social security benefits were required to include 85% of the amount in their taxable income. The budget proposes this be reduced to 50% effective January 1, 2010 for those who have been receiving benefits since before Jan. 1, 1996.

Given the recent terrific performance of our Olympic athletes, the budget proposes $22 million funding over a two year period into the “Own the Podium” program. Ottawa wants to double the contribution to the winter sports portion. And finally a few notes about money. The budget introduced legislation to reduce the cheque hold period from a maximum of 7 days to 4 days and to provide Canadians access to the first $100 within 24 hours. New bills made of a polymer material and less expensive coins are expected to save about $15 million per year.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.