SMART MONEY MOVES
The federal budget and other taxing matters

With no tax increases and no additional taxes, the March 6 federal budget didn't elicit much reaction from the general public. However, it contained a number of measures that may affect you immediately. Even more important, the budget's pension reform proposals have serious implications for all Canadians.

Budget highlights

• Child support payments, for agreements or court orders made after April 30, 1997, will no longer be deductible for the payer and taxable to the recipient.
• The annual limit on donations to charity increases to 50% of net income from the previous 20%. In the year of a taxpayer's death, the limit is 100%.
• Contribution limits to Registered Education Savings Plans (RESPs) increase to $2,000 per beneficiary per year (up from $1,500). The cumulative maximum increases to $42,000 from $31,500.
• The Education Credit increases to $100 per month from $80. In addition, transferable tuition and education amounts, which can be claimed by the person supporting the student, rise $1,000 to $5,000 a year.
• The maximum tax credit for support of infirm dependants increases to $400 from $270. In addition, the infirm dependant is now allowed to earn $4,103 (increased from $2,690) before the credit starts to be phased out.

Pension reform

• RRSP contribution limits are held at $13,500 until 2003.
• There is now no time limit for carrying forward unused contribution room on your RRSP (previously seven years).
• You must mature your RRSP by the end of the year in which you turn 69 (previously age 71).
• Old Age Security and the Guaranteed Income Supplement will be replaced by 2001 with a new income-linked Seniors Benefit. Single seniors who earn more than $52,000 a year and couples who earn $78,000 will not receive this benefit. (Certain transitional rules will apply to seniors who turned 60 before the end of 1995.)

YOUR MOVE. Pension reform affects everyone. It means that young people will have to save harder to retire in comfort. Middle-aged and older Canadians will need more sophisticated financial planning strategies to protect their post-retirement income.

We'll look at some specific strategies to consider in future issues of Financial Planning Guide. For now, concentrate on saving the maximum for retirement. Contribute as much as you can every year, and review your plan with a professional to make sure it's in keeping with your long-term goals.