Last week's federal budget included key tax, regulatory and expenditure changes. We've listed some provisions that are likely to affect you.
How the budget affects you
Federal budgets tabled by minority governments tend to be generous, and last week's version was no exception. Finance Minister Ralph Goodale announced spending increases ranging from defense to more aid for seniors. These were accompanied by a slew of taxation and regulatory changes. To help you sort through it all, we've listed key provisions that are likely to affect ordinary Canadians.
This measure, which will be phased in between now and 2009, will also simplify the tax code and ease paperwork, since businesses will no longer have to make source deductions for a growing number of low-income employees. Provinces set their own basic personal amounts, and it remains to be seen whether they will follow suit in making the changes.
More money for seniors
Adoption care credits
Air-travel security charge
Small business tax changes
RRSP and pension changes
The annual RRSP contribution limit for upper income earners will increase from $18,000 to $22,000 between now and 2010. For registered pension plans, the limit will move from $19,000 to $22,000.
In addition the ceiling which caps the amount of foreign securities that RRSP holders are permitted to invest in at 30 percent, will be scrapped. That's good news for investors. Canadian equities represent only about 2.0 percent of the capitalization of the world's stock markets. This measure will give Canadians greater flexibility in allocating their retirement savings. It should also potentially boost the returns they get on their portfolios over the long term and it will make it easier to diversify investment risk across multiple economies.
Changes could hit certain stocks
According to Pierre Lapointe, a market analyst at National Bank Financial, there are several categories of companies that are most likely to be affected. These include large Canadian companies in sectors in which they are not world leaders. The presumption is if Canadian investors and mutual fund managers are no longer forced -by ownership limits,--to buy domestic issues, they'll buy the best stock available.
Canadian companies that trade at lower valuations than their international peers are also vulnerable, as are firms with low foreign ownership. Fortunately the adjustments to stock prices are unlikely to take place overnight.
"The impact on these companies could be spread over time," Lapointe said. "Fund managers are often evaluated in comparison with specific benchmarks, and they might limit diversification initially to reduce tracking errors."
Canadian individual investors are also likely to remain cautious Lapointe said, noting the U.K. example. Despite having no foreign content limit, U.K. investors, still keep about 75 percent of their investments in domestic issues.
For more information about the Federal budget and how it will affect you, you can check out the following Web-sites.
Peter Diekmeyer (http://www.peterdiekmeyer.com/) is a Montreal based business writer.
|© 2005 Peter Diekmeyer Communications Inc.|