Budget 2009: CARP’s Full Analysis

Limited Tax Relief

CARP members will welcome the broad based tax relief available to all lower and middle income Canadians, and the home improvement incentives, together with the $1,000 increase in the age credit. But beyond the re-announcement of the 25% reduction in mandated RRIF withdrawals, there is little in Budget 2009 to address the anxiety facing Canadians who have watched their retirement savings vaporize in the current market chaos.

The increase in the personal exemption and tax brackets means that people can earn more before paying federal income tax and more will be taxed at lower tax rates. But the savings are modest. Everybody benefits from the increased personal exemption to the tune of $33. From increasing the thresholds in the first 2 income brackets, a single senior with between $40,000 and $80,000 in total income [not including their OAS] will save $133 and in the upper tax brackets, taxpayers will save $284.

In addition, the $1,000 increase to the age credit is worth an additional $150 but as with the existing age credit, the credit is eroded as total income increases. Seniors with up to $32,312 will receive the full benefit of the increased age credit. The credit is fully phased out at $75,032 of income.

RRIF Withdrawals – 25% reduction stays

The confirmation of the 25% reduction in mandated RRIF withdrawals announced in the November Economic Statement has to be taken as a small nod to the widespread clamor for a two year moratorium on the mandatory withdrawals but it is a far cry from what is needed. And even this little measure caused no end of frustration as people were unable to apply the discount in making their year-end withdrawals. The financial institutions were either not able to program their computers or were unwilling to take the chance that the proposal would not be enacted.

This has to be a disappointment for those who had hoped that the government would help those who had acted responsibility to provide for their own retirement and got hit with circumstances beyond their control. The moratorium would have deferred tax revenues but if people were allowed to keep their savings in the tax deferred RRIFs until the market recovered, there could be higher tax revenues from the later withdrawals.

For those who manage to hang onto a substantial part of their RRSP/RRIF portfolio until their death, there’s an important measure that will benefit their beneficiaries. Any losses accruing after the annuitant’s death and before the investments are distributed to their beneficiaries may be carried back and applied against the RRSP/RRIF amounts included in the year-of-death tax return.

National Securities Regulator – Investor Protection

Investor protection got an important boost with the proposal to introduce the legislation to implement the recommendations of the Expert Panel on Securities Regulation [the “Hockin Report”. However, it remains to be seen whether the all important enforcement provisions make it into the legislation.

While most of the public discussion has surrounded whether a single securities regulator is possible with the high profile dissent of Alberta and Quebec, the significance of the Hockin Report lies in its clear and present focus on investor protection.

The measures recommended in the Report would provide welcome solace for investors who have had to navigate the patchwork of complaints and redress mechanisms on their own. Support for investors would come in several ways.

• a dedicated service to better inform and guide investors with complaints or seeking redress

• power to order compensation rests with the securities regulator- obviating the need for civil lawsuits

• establishment of an investor compensation fund

• mandatory participation in the dispute resolution process

The establishment of an Independent Investor Panel to represent and advocate the interests of investors in securities regulation would give a stronger voice to investors on a regular basis. It makes sense that the people most affected have a seat at the table.

The inadequacy of securities enforcement in Canada has eroded public confidence in the securities industry and the added anxiety of the current market downturn makes the need to strengthen securities enforcement even more urgent.

The Hockin Report endorsed the reform proposal submitted by the Canadian Coalition for Good Governance. “The proposal would establish a National Enforcement Branch under the auspices of a single securities commission. The Branch would have two distinct and independent Divisions; one Division would investigate and prosecute matters regarding administrative enforcement, while the other Division would conduct corresponding activities for criminal enforcement. Administrative matters would continue to be adjudicated by the independent adjudicative tribunal. Criminal matters would be brought before criminal courts presided over by judges that have the necessary expertise to properly adjudicate capital markets criminal cases.”