News and Events

Historic 2009 Federal Budget and Deficit Projections

January 28, 2009

The 2009 Federal Budget, in the midst of a major recession, provided several major measures. For the first time in a dozen years, Canada is re-entering deficit financing as measures to counteract the global economic recession were announced in the January 27 Federal Budget. Following are some highlights with links to more detailed information provided by the budget papers and by Canada Revenue Agency.

Federal Debt

Federal debt as a percentage of the Canadian economy (GDP) has been declining since the mid-1990s. As depicted in this chart, Canada’s federal debt is projected to rise with deficits of $64 billion in the next two fiscal years ended March 2010 and 2011. The budget anticipates a ratio below the 30% level again in 2014.

Housing

Efforts to re-ignite housing investment include:

• Home Renovation Tax Credit (HRTC) offering up to $1,350 in tax relief for home renovations. [For more details, click here.]
• First-time homebuyers to be eligible for up to $750 in tax relief for transaction costs and for Home Buyer RRSP loans up to $25,000 (formerly $20,000).
• $2 billion for social housing for low-income earners, seniors, people with disabilities and native Canadians.
• An additional $50 billion to the Insured Mortgage Purchase Program, raising this funding to $125 billion. Our Scotia Capital Economics advisors view this measure as very positive to help free up credit markets.

Employment Measures

• $8.3 billion for the Canadian Skills and Transition Strategy for job retraining
• Employment Insurance program enhancements to extend EI by five weeks to 50 weeks
• Improve work sharing provisions

Infrastructure Investments

Almost $12 billion in new project funding over two years, including a $4-billion fund for shared-cost projects with provinces and municipalities to repair roads other infrastructure. The government will also create a $500-million fund for recreational facilities like hockey arenas. Projects include improvements to the Montreal-Ottawa-Toronto rail corridor; repairing Montreal's Champlain Bridge; twinning a section of the Trans-Canada Highway through Banff National Park; improvements to the Sarnia and Fort Erie border crossings.

Income Taxes

The budget proposes to:

• Increase the income eligible for the small business tax rate to $500,000 from $400,000
• Provide a $20-billion cut to personal income taxes, including increasing the basic personal amount and the top of the two lowest income tax brackets by 7.5 percent
  • Increase the basic personal amount to $10,320 in 2009 from $9,600 in 2008, allowing individuals to earn more income before paying federal income tax.
  • The top of the first personal income tax bracket will be increased to $40,726 in 2009 from $37,885 in 2008, allowing more income to be taxed at the lowest 15-per-cent rate, rather than the 22-per-cent rate.
  • The top of the second personal income tax bracket will be increased to $81,452 in 2009 from $75,769 in 2008, allowing more income to be taxed at the 22-per-cent rate, rather than the 26-per-cent rate.

Retirement Income Repayment Proposal - 2008 Tax Year Only

Canada Revenue Agency will allow holders of registered retirement income funds (RRIFs) to reduce their minimum withdrawals for 2008 by 25 per cent by repaying this amount no later than March 2, 2009, or 30 days after the regulation becomes law, whichever is later. An RRSP-like receipt will be provided for tax returns. Further information may be found at www.cra.gc.ca/seniors or by reviewing this document.

Estate Taxation

A decline in the value of RRSPs and RRIFs after death will now be allowed as a deduction in the deceased’s year-of-death tax return.

A more detailed analysis of the Federal Budget is available by opening the following document from Ernst & Young.