5 Federal Budget Changes that Real Estate Investors Should be Aware Of

Last week, the Trudeau government came out with their budget for the first time.

As a mother of two, I get upset at any tax and benefit cut against our children.

There is no more Child Fitness Tax Credit (currently $1,000 maximum x 15% refundable to you), no more Children’s Art Credit, no more Education Tax Credit and Texbook Tax Credit.

And more importantly, the current Universal Childcare Benefit will not be available starting July 2016. It is replaced by Canada Child Benefit which will be non-taxable and will provide $6,400 per child under age of 6 and $5,400 between 6 to 17.

Didn’t sound bad, did it?

The catch is that only families with adjusted family income under $30,000 are eligible to receive maximum benefit described above.

The benefit will be completely eliminated if you have family income over $190,000.

For those people who work hard and make decent salary from jobs income for their families, sorry, this budget isn’t fair to you. We are getting our benefits and tax credit cuts.

I wouldn’t be as angry if this cut actually keeps our budget balanced. It’s just sad that we would again borrow more, $113 billion more by 2020/2021, to spend more. 😡

And our budget won’t be balanced until next election date.

Now, on to the highlights of the budget that would affect majority of the real estate investors:

1. Small business deduction rate is frozen at 15%
   In Stephen Harper’s last budget, he was planning to reduce the small business deduction rate gradually from 15.5% to 13.5%.In 2016, the rate is 15%.Justin Trudeau announced that the small business rate will remain at 15% in Ontario.For the real estate flippers out there, unfortunately you won’t see more money in your pocket over the next few years.For the real estate investors who use the three tiered tax structure, the frozen rate means that you would have to have more properties to realize the benefit of this structure.

2. Cost of incorporation can be written off in the year it is incurred It is not always bad news.When you set up a corporation in the past, the $1,500 you incurred would have to be capitalized as an asset in your tax return.Only 75% of the $1,500 is deductible over time.Budget 2016 allows you to deduct the cost of incorporation that’s under $3,000 in the initial year as a current expense!Real estate investors can use this deduction immediately against their rental income the year it is incurred, instead of waiting to get the benefit of it over many years.

3. No more family income splitting This doesn’t come as a surprise at all. Stephen Harper introduced this family income splitting measure that allows families with children under the age of 18 to split income to save up to a maximum of $2,000 annually.2015 was the last year that this tax saving scheme is available to anyone.From 2016 onwards, there is no more family income splitting.

4. Donations of real estate or small business corporation shares If you are planning on donating real estate or small business corporation shares after death, Budget 2015 allowed income tax exemption on sale if you sold these assets after death and donate them within 30 days.If this rule was to come into effect in 2017, someone could get a tax exempt treatment on the capital gain of the properties and get the full donation credit incurred from donation.A measure that’s meant to encourage more donation.Unfortunately, Budget 2016 decided to cancel it.

5. More auditors and more tax specialists to be hired This budget will provide $351.6 million over the next year to CRA to collect outstanding tax, crack down the underground economy and combat against aggressive tax planning.This also means that it is more important than ever to have proper documentation backup for all of your tax filings.Next week, I am going to go back to the repairs & maintenance discussion.

Until next time, happy Canadian Real Estate Investing.

Cherry Chan, CPA, CA

Your real estate accountant