Our Bank of Canada Governor, Stephen Poloz says that interest rates will remain low for some time. Not exactly what I want to hear. Like most things political or economic, interest rates affect people differently. What is good for some is not so good for others. Low interest rates are good for borrowers and most businesses, but not good for savers or most investors. They are especially not good for seniors whose disposal income depends on savings or investments, or those on fixed incomes whose buying power will be pummeled by inflation. We usually have some inflation, but keeping interest rates artificially low for too long could lead to an unhealthy amount of inflation which will eat away many seniors' ability to to live in dignity.
BC Finance Minister Mike de Jong recently presented a budget that projects a budgetary surplus in the coming fiscal year. We will see how that goes. Some modest income tax increases will be coming along with a hike in cigarette taxes and increases in MSP premiums.
Starting January 1, 2014 a two year increase in BC personal income taxes will apply to taxpayers making over $150,000. Unfortunately, this won't apply to me. The projected rate increase is 2.1% on taxable income over $150,000. An increase in provincial corporate income tax from 10% to 11% that was scheduled to start
April 1, 2014 has been moved up to April 1, 2013.
Ahoy, all you smokers out there in BC. The price of your cigarettes is going to bounce sharply upward. The previously announced increase in BC provincial taxes of $5.60 per carton will come into effect April 1, 2013. On October 1, 2013 a further $2.00 will be levied. Naturally, these increases will also have the effect of automatically increasing the GST that applies to your cigarettes. Similar hikes are planned for fine-cut tobacco.
BC Medical Plan premiums will be increased starting January 1, 2014. The maximum monthly rate for one person will go up by $2.75 to $69.25. The maximum rate for a couple will go up $5.00 to $125.50 and the hit for a family of three or more will go up by $5.50 to $138.50. These increases don't sound like a lot but they work out to around 4%. Seniors who live on pensions are not likely to see a 4% increase in their monthly pension payments anytime soon.
The threshold for phasing out the property tax homeowner grant is increased to $1,295,000 for 2013. The school tax credit for class 5 light industry will be phased out in 2013 and 2014.
The exemption from property transfer taxes on the transfer of a deceased person's family farm is being expanded to include situations where the property had been used and farmed by the deceased, the deceased person's family or by a family farm corporation.
A new baby bonus is in the works. Mr. de Jong announced that starting April 1, 2015 a BC Early Childhood Tax Benefit of $55 per month per child will be paid to families for children under the age of six. This refundable tax credit will be reduced when family income exceeds $100,000 and eliminated if family income reaches $150,000. The province expects to piggyback the application form with the Canada Tax Benefit application. Mr. de Jong also proposed a one-time training or education grant of $1200 for children born after 2006. In order to get this grant, families would have to open an RESP account and apply for the grant before the child is 7 years old.
Don't forget on April 1, 2013, BC PST and GST will be back and the Harmonized Sales Tax (HST) no longer will apply in BC. The PST regulations that will apply have not yet been released.
The Government of Canada today announced that the annual contribution limit for Tax Free Savings Accounts (TFSA) will go up by $500 to $5500 in 2013. On January 1, 2013, the cumulative annual contribution limit will be $25,500. If you have never put money into a TFSA you could contribute that amount in 2013.
The TFSA has become very popular since it started in 2009. Over 8 million Canadians have set up a plan, and as of the middle of 2011, held about 54 billion dollars in these plans. The best feature of this program is that income earned in and withdrawals from a TSFA are not included in income. However, the contributions are not tax deductible.
The real benefit of the TFSA program will come in the future as people who have had a working lifetime to accumulate TFSA contributions begin to retire with significant amounts of tax free income. Finance minister Jim O'Flaherty has said that the government intends to increase the annual contribution limits in the future to $10,000. - after the government is able to get back to balanced budgets. As time goes on I believe that TFSAs will become more popular that RRSPs.
As of January 2013 a couple could have $51000 plus accumulated growth invested in their TFSA accounts generating some tax free incomeI. This in not a huge amount, but if you are a senior on a fixed income every bit helps.
Unlike RRSPs, you can keep contributing to a TFSA after the age of 71. If you have unregistered funds earning taxable income why not utilize your TFSA.