Budget 2015: A loot bag filled with useless toys

So today was budget day and if you want to read through the nearly 600 page behemoth, here it is.

There is a lot of little stuff of the budget which is typical of an election style budget. Make sure everyone gets their goodies. But a lot of what is in there was already announced or committed to. This includes the Family Tax Cut, the increase to the UCCB, the increase to the Child fitness tax credit, and the increase to the Tax Free Savings Account. I won’t spill any more proverbial ink discussing these measures that have already been discussed ad nauseum.

Instead, I will focus on a few interesting tidbits.

As I predicted the Mineral Exploration Tax Credit was extended for yet another year. The CPCs just don’t have enough guts to let this one die. If you want to know what this credit should be retired once and for all, here is a more detailed post.

I also predicted the accelerated capital cost allowance for manufacturers would be being extended, and it is and for quite a lengthy period. This is really just a race to the tax bottom with the US that also allows such nonsense. If you want to know why we should stop these shenanigans, here are more detailed thoughts.

The NDP had already committed to dropping the small business tax rate and the CPCs borrowed from their play book. The small business tax rate, currently at 11%, will fall 0.5 percentage points each year for four years, down to 9%. The CFIB will have you believe otherwise, but this is yet another measure that overly benefits the wealthy, something even Jack Mintz agrees with.

The budget also extends the exemption of donations of public shares from capital gains tax to private shares, meaning that shares in a CPCC can now be donated without eating into the generous lifetime capital gains exemption that already exists. While the budget predicts this will result in $250M in lost revenues, it is not clear to me where that estimate comes from and seems vastly overstated, much like they did with the super charitable donation tax credit (which proved to be a big loser, as predicted by economists).

While some might argue that there were no boutique tax credits in this budget, I beg to differ. This budget announced the “Home Accessibility Tax Credit for seniors and persons with Disabilities to help with the costs of ensuring their homes remain safe, secure and accessible.” This is a non-refundable tax credit that you can obtain on up to $10,000 in eligible home renovations per year. Before you get too excited, remember that this is a tax credit. It is only worth 15% of the expenses, so a total of $1500 and since it is non-refundable if you are already in a $0 tax position, it has no value to you.

But I am quite curious about why this new boutique tax credit is needed? We already have the Medical Expense Tax Credit which has no upper limit on the claim but which needs to amount of more than 3% of your next income or $2,171, whichever is lower. The Medical Expense Tax Credit actually already allows you to claim improvements to your home that are medically necessary. This includes the same expenses noted in the budget for the Home Accessibility Tax Credit. This includes modifying entrances, building ramps, lowering cabinets, added handrails, widening doors, among other expenses and in some cases the addition of hot tubs. The budget did not make it clear if expenses can be claimed under both tax credits or how these two tax credits work together or how they complement each other. I really dislike it when there is overlap and duplication because this really increases tax complexity and the compliance burden, both things which the CPCs said they would reduce in this budget. What I would say is anyone claiming either one of these should look very carefully at the rules and ensure that they use the right credit to maximize their claim. In the end, this looks like nothing more than an announcement for announcements sake and fools individuals into thinking the CPCs are doing something good as opposed to needless and unnecessary.

UPDATE: You can indeed double dip and claim the same expenses under the Medical Expense Tax Credit and Home Accessibility Tax Credit,

My bottom line of the budget is that it is just like a loot bag that you give out at a kid’s party: you get all exited with the gift until you get home and see that it is filled with useless toys.

Tax discussions and time wasters

About a month ago Frances Woolley had an interesting post over on Worthwhile Canadian Initiative about academic discourse on the Children’s Fitness Tax Credit (CFTC). In that blog post Frances wonders if the time academics have spent critiquing the Children’s Fitness Tax Credit has been “a waste of time.” (You can read my ruminations on this tax credit here, here, and here) After all, she writes, it “enjoys widespread support” among Canadian families and it does not amount to that much money.

When I first read this, I agreed that it indeed felt like efforts to educate politicians and the public on the wastefulness of these boutique tax credits was a waste of time. But I have changed my mind and I have four reasons for this.

First, some politicians are paying attention to what has been said. The Government of Saskatchewan has since made their version of the CFTC (called the Active Families Benefit) means tested, making it available only to those families with net incomes below $60,000 “to ensure that it continues to benefit those families that need it most.” The Government of Nova Scotia just today eliminated their version of the CFTC (called the Healthy Living Tax Credit) stating that “this credit is not helping low-income Nova Scotians, which was the original intent.” The Harper government also recently made the CFTC refundable. All of the actions address, in whole or in part, the critiques that have been levied.

Second, just because academic critiques have been largely ignored to date, does not make them a waste of time. Changing people’s minds takes time, and effort, sustained effort. The more I have talked about this and related tax credits with regular people using everyday language the more they have changed their minds about their support of these credits.

Third, academic discourse on this topic is easily consumable by non-academics. The papers and commentary are on a narrow, easily understood topic, but they apply principles that extend to other aspects of the tax system. This discourse has allowed non-academics to gain knowledge and information about the tax system that is generalizable to other features of the tax system. You would be amazed at how many more people now understand the basic difference between the amount of credits vs. their cash value solely because of CFTC discussion. It has allowed non-academics to enter into discussions about technical aspects of the tax system that they would otherwise have not. This links to another point in Frances’s post talking about “aspects of the tax system of greater significance of the Children’s Fitness Tax Credit.” It is opening up that discussion and debate and making the research easier to find and understand, particularly that related to income splitting, the dual tax system, and user fees.

Finally, it has gone a long way in linking academics with policy makers and, more directly, to Canadians. This is important and hugely beneficial. Even if we all don’t agree, right Frances. 😉