Canada Pension Plan (CPP) benefits are available without a reduction at age 65, but Canadians can choose to start a pension as early as age 60 with an early retirement reduction of 7.2% per year (36% reduction at age 60), or they can choose to delay commencement after age 65 with an actuarial increase in the CPP benefit of 8.4% per year to a maximum increase of 42% if commencement is delayed until age 70. There is no additional increase if commencement is delayed past age 70.

Currently CPP benefits do not start automatically, individuals must apply to start CPP benefits. The federal government estimates that there are approximately 40,000 Canadian over age 70 who have not applied to start their CPP benefits. The government intends to introduce amendments that will automatically start CPP benefits for any Canadian over age 70 who has neglected to apply for CPP, and will automatically start CPP benefits at age 70 for Canadian who turns age 70 in the future and has not elected to start CPP benefits.

In addition to the CPP (and Quebec Pension Plan) to which all working Canadians and their employer contribute, and the basic Old Age Security benefit, another pillar of the government pension program is the Guaranteed Income Supplement and Allowance (GIS) which is an income-tested benefit payable to seniors with little or no other retirement income.

Currently low-income seniors who are eligible for GIS and who wish to continue working, will see a significant reduction in their GIS benefit for every dollar of employment income that they earn. At present, the GIS earnings exemption allows low-income seniors and their spouses to earn up to $3,500 of employment income per year without triggering a significant reduction in GIS benefits.

Budget 2019 proposes that the GIS earnings exemption be adjusted beginning with the July 2020 to July 2021 benefit year to increase the full GIS earnings exemption from $3,500 to $5,000 per year, and to provide a partial exemption for up to another $10,000 of annual income. Eligibility for the earnings exemption will be extended to include both employment income and self‑employment income.

In 2018, the federal government held consultations on enhancing Canadians’ retirement security. Specifically, the consultations related to pensioners receiving reduced benefits as a result of employer insolvency and an underfunded workplace pension plan.

Budget 2019 proposes to introduce amendments to the Companies’ Creditors Arrangement Act, the Bankruptcy and Insolvency Act, the Canada Business Corporations Act and the Pension Benefits Standards Act, 1985 to better protect workplace pensions in the event of corporate insolvency.

These new measures are intended to:

• make insolvency proceedings fairer, more transparent and more accessible for pensioners and workers (those involved will be required to act in good faith and courts will have greater ability to review payments made to executives in the lead up to insolvency)
• set higher expectations and better oversight of corporate behavior with changes to corporate laws:
  • federally incorporated businesses will be able to consider diverse interests, such as those of workers and pensioners, in corporate-decision making
  • publicly traded, federally incorporated firms will be required to disclose their policies pertaining to workers and pensioners and executive compensation, or explain why such policies are not in place and will also be required to hold and disclose the results of non‑binding shareholder votes on executive compensation
• protect benefits with clarification of federal pension laws:
  • that if a plan is wound-up, it must still provide the same pension benefits as when it was ongoing
  • an annuity discharge for defined benefit pension plans

Budget 2019 also indicates that the government will continue to engage with Canadians on further ways to support the sustainability of defined benefit plans.

Budget 2019 proposes changes to the tax rules to allow two new types of annuities for certain registered plans, applicable to 2020 and subsequent years:

• Advanced Life Deferred Annuities (ALDA)under a registered retirement savings plan (RRSP), registered retirement income fund (RRIF), deferred profit sharing plan (DPSP), pooled registered pension plan (PRPP) and defined contribution registered pension plan (DCRPP)
• Variable Payment Life Annuities (VPLA) under a PRPP and DCRPP

The proposed ALDA has the following features:

• allows annuities to commence by the end of the year in which the annuitant attains 85 years of age (currently 71 years of age)
• value of the ALDA will not be included for purposes of calculating the minimum amount required to be withdrawn in a year from RIFF, PRPP or DCRPP after the year in which the ALDA is purchased
• a lifetime ALDA limit of 25% of a specified amount in relation to the value of property in a particular qualifying plan and a comprehensive lifetime ALDA indexed dollar limit of $150,000 from all qualifying plans
• certain annuity requirements are required to be satisfied

The ALDA option is a welcome addition to the toolbox for members of capital accumulation plans (including Group RRSPs) as it provides a way to ensure that members do not outlive their retirement savings.

The proposed VPLA has the following features:

• annuities can be paid directly to members from a DCRPP or PRPP
• a minimum of 10 participating annuitants
• certain requirements, such as adjusting periodic payments to reflect the investment performance of an underlying annuities fund and the mortality experience of the participating annuitants, are required to be satisfied

The VPLA option provides another a new decumulation option that DCRPPs and PRPPs can make available to their members.

The current federal unclaimed assets framework deals with unclaimed deposits (accounts, deposits or other instruments held by financial institutions) that have been inactive for 10 years.

In 2018, the federal government held consultations on a regime to address unclaimed pension balances (as promised in the 2018 federal budget).

Budget 2019 proposes to introduce amendments to the Bank Act, the Bank of Canada Act, the Trust and Loan Companies Act and the Pension Benefits Standards Act, 1985 to expand the scope of the framework to include foreign denominated bank accounts and unclaimed pension balances from terminated federally regulated pension plans.

The current tax rules for registered pension plans (RPPs) do not permit members to accrue benefits after the end of the year in which they attain age 71, and employer contributions can no longer be made in respect of such members.

However, in the case of a specified multi-employer pension plan (SMEP), a special type of union-sponsored defined benefit pension plan, employers are not prevented from making a contribution to a SMEP in respect of an employee over age 71. These contributions would not benefit the individual directly, as those over age 71 are no longer accruing benefits.

The budget proposes to bring the SMEP rules in line with the regular RPP tax rules to no longer permit an employer contribution to a SMEP in respect of a member after the end of the year in which the member attains age 71 or if the member is receiving a pension from the plan. To provide SMEPs with time to transition, this measure will apply in respect of SMEP contributions made pursuant to collective bargaining agreements entered into after 2019, in relation to contributions made after the date the agreement is entered into.

When an individual terminates membership in a defined benefit pension plan (DBRPP), one option that is available is to transfer the commuted value of the pension to a locked-in RRSP. However, the maximum transfer rules restrict the amount of commuted value that can be transferred on a tax-deferred basis, and members who are terminating from plans with generous ancillary benefits (such as subsidized early retirement benefits and cost-of-living increases) may not be able to transfer the full commuted value on a tax-deferred basis. The maximum transfer limit does not apply where the commuted value is transferred to another DBRPP sponsored by another employer.

Some financial planners are utilizing an Individual Pension Plan (IPP) to circumvent these limits, by establishing an IPP sponsored by a newly created corporation controlled by the individual. As a result, the individual is able to transfer the full commuted value on a tax-deferred basis from the former employer’s pension plan to the new IPP (which as a DB plan is not subject to the restrictions that apply to a commuted value transfer limits).

The Budget proposes to stop this practice by prohibiting IPPs from recognizing past years of employment that were pensionable service under a DBRPP of an employer other than the IPP’s participating employer.

Budget 2019 proposes amendments to the Public Service Superannuation Act, the Canadian Forces Superannuation Act and the Royal Canadian Mounted Police Superannuation Act to increase the surplus limit for the pension plans covering: (i) the Public Service; (ii) the Canadian Armed Forces (Regular Force); and (iii) the Royal Canadian Mounted Police, from 10 per cent to 25 per cent of the plans' liabilities.

Currently, the Home Buyers’ Plan (HBP) allows first-time home buyers to withdraw up to $25,000 from their RRSP to purchase or build a home, without having to pay tax on the withdrawal. Unlike regular RRSP withdrawals, HBP withdrawals are not added to a person’s income when withdrawn. Instead, the HBP withdrawals must be repaid over a 15-year period or be included in the individual’s income if not repaid. The HBP maximum withdrawal amount—currently $25,000—has not been adjusted for 10 years. To provide first-time home buyers with greater access to their RRSP savings to purchase or build a home, Budget 2019 proposes to increase the Home Buyers’ Plan withdrawal limit to $35,000. This would be available for withdrawals made after March 19, 2019.

Budget 2019 also proposes that Canadians who experience the breakdown of a marriage or common-law partnership be permitted to participate in the Home Buyers’ Plan, even if they do not meet the first-time home buyer requirement. This would help individuals facing this challenging life event to maintain homeownership.

Budget 2019 proposes to expand health-related tax relief under the Goods and Services Tax/Harmonized Sales Tax (GST/HST) system. Included are: some fertility treatments, some devices related to podiatry and chiropody, and some multidisciplinary health provider services. Changes will come into effect on March 20, 2019. These changes are expected to have a minor impact on private drug plans.

Health and Welfare Trusts are governed by administrative policies of the Canada Revenue Agency (CRA), while Employee Life and Health Trusts are governed under the Income Tax Act. Last year’s budget proposed that CRA will no longer apply their administrative position with respect to Health and Welfare Trusts after the end of 2020. It further stated that to facilitate the conversion of existing Health and Welfare Trusts to Employee Life and Health Trusts, transitional rules would be added to the Income Tax Act. Trusts that do not convert (or wind up) to an Employee Life and Health Trust would be subject to the normal income tax rules for trusts. Budget 2019 reiterates this goal, but provides no detail.

Medical Expense Tax Credit

Budget 2019 confirms that medical cannabis is an eligible expense for the purposes of the Medical Expense Tax Credit (METC). Eligible expenses for the METC will also include expenses for other classes of cannabis products purchased for a patient for medical purposes, once they become permitted for legal sale under the Cannabis Act.

Excise Tax

Budget 2019 has made some changes to the application of the excise tax so that all cannabis products are treated the same according to their level of THC. This is an extension of the measures introduced in the last budget.

Budget 2019 proposes to provide additional funding for targeted measures to address persistent gaps in harm reduction and treatment. Specifically, funding will support efforts to expand access to a safe supply of prescription opioids protecting people with problematic opioid use from the risks of overdose and death.

While there may be little impact on private health plans, the strategy is a move in the right direction and will help to curb overall use and the negative impact of addiction issues.