Adrian Mastracci, president of KCM Wealth Management says "The tax measures are primarily tweaks of existing provisions."

Vancouver, BC (December 10, 2001): The Honourable Paul Martin, Canada's Finance Minister, today announced a number of income tax measures in the 2001 Federal Budget. The proposals are divided into personal and business measures.

Adrian Mastracci, president & fee-only investment counsel at Vancouver based KCM Wealth Management comments, "Overall, the measures are primarily tweaks of the existing provisions. There is little substance for the majority of taxpayers."

Personal Income Tax Proposals

1. A deduction for a portion of the cost of new tools acquired by apprentice vehicle mechanics. The deduction will be the total cost of new tools acquired in a taxation near, less the greater of $1,000 and 5% of the individual's apprenticeship income for the year. These measures will apply in 2002 and subsequent taxation years.
2. Individuals may deduct the amount of tuition assistance received for adult basic education that has been included in their income. This measure will apply to eligible tuition assistance received after 1996. Administrative procedures will be established in the months ahead to enable individuals who received eligible tuition assistance before 2001 to recover their income taxes paid on those amounts.
3. Expand access to the education tax credit to students who receive taxable assistance for post-secondary education. This applies to the $400 per month of full-time study and the $120 per month of part time study tuition credits. The measure will apply for 2002 and beyond.
4. Facilitate intergenerational rollovers of commercial woodlot operations that are farming businesses. Specific criteria for prescribed forest management plans will be developed in consultation with interested parties in the near future. This measure will apply to transfers that occur after December 10, 2001.
5. Extend the 1997 budget measure that provided special tax assistance for donations of certain securities to public charities. Under that measure, the amount included in the income of the donor for capital gains tax purposes arising from donations of eligible securities to public charities is one-half the amount included for other capital gains.
   
   Make permanent the 2000 budget measure that reduces the tax on employment benefits in respect of donations of eligible securities acquired through stock option plans. This parallels the treatment for donations of eligible securities to charities.
6. Beginning with benefits payable for July 2002, an individual's GST Tax Credit (GSTC) entitlement for a quarter will be based on the individual's family circumstances at the end of the preceding quarter.

Business Income Tax Proposals

1. Increase the upper limit on the size of small hydro-electric projects that qualify for class 43.1 to a maximum annual rated capacity of 50 megawatts. This is an increase from the current limit of an annual average generating capacity of 15 megawatts. The change will apply to property acquired after December 10, 2001.
2. Defer payment of the federal corporate tax instalments for the months of January, February and March 2002 for a period of at least six months, without payment of interest or the assessment of penalties. Corporations will qualify for this instalment deferral if they are resident in Canada and did not have more than 15 million of taxable capital employed in Canada in the previous taxation year.
3. Farm Credit Canada will not be subject to federal income tax and capital taxes for taxation years that began after December 10, 2001. Farm Credit Canada is a federal Crown corporation that provides specialized financial services to farming operations. It is Canada's largest term lender to primary producers and small to medium-sized agribusiness. This will put it on par with the Export Development Corporation and the Business Development Bank.
4. Two measures will facilitate the use of limited partnerships by tax-exempt and foreign investors in structuring their venture capital investments. The first eliminates the 30% ownership limitation for Qualified Limited Partnerships. The second makes it easier for non-residents who invest through partnerships to retain Canadian investment managers and advisers. The budget proposes to clarify how section 115.2 applies to partnerships and their members. These changes will apply after 2001.
5. Allow 100% deductibility for the cost of meals provided to an employee housed at a temporary work camp and working at a construction site. It will also be required that the employee cannot be expected to return home daily. The current measure only allows a 50% deduction for business expenses for meals or entertainment. The new proposal will apply to expenses incurred after 2001.

Other Proposals

To date, the federal government has entered into taxation arrangements allowing seven First Nations to levy a tax on sales on their reserves of fuel, tobacco products and alcoholic beverages. In addition, personal income tax collection and sharing agreements have been entered into with the seven self-governing Yukon First Nations. The government is once again expressing its willingness to discuss and to put into effect arrangements in respect of direct taxation with interested First Nations.

"As you can determine from the above, there is very little new proposed in the income tax area," summarizes Mastracci, "However, I caution that these are only budget proposals. It is possible that changes will be made to them between now and the time that the draft legislation is actually introduced and becomes law.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.