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Fedder, Gurau & Staniewski - Chartered Professional Accountants


Tax Update – 2016

The new Liberal government has proposed to implement some tax changes effective 2016. Generally, these changes are advantageous to the middle class but have reduced or removed benefits for those that are in wealthier groups. Below are the proposed changes.

Personal tax rates – Effective January 1, 2016, personal marginal tax rates have changed for two tax brackets. Individuals with a taxable income between $45,282 and $90,563 will have their federal rate reduced from 22% to 20.5%. The federal tax savings for individuals in this bracket is up to $679 per individual. To pay for this tax cut, individuals earning more than $200,000 will have their federal rate increased from 29% to 33%. The federal rate increase for the top earners will increase taxes on investment income by the following percentage points: 4% for interest income, 2% for capital gains and 5% to 6% for dividends.

Charitable donations – For individuals earning in excess of $100,00, a donation results in a reduction in tax payable at the rate of approximately 46%. Under the proposed changes, for individuals earnings above $200,000, the value of the donation tax credit will be increased to match the top tax rate.

Tax on split income (kiddie tax) – Certain types of investment income split with a non-arms length minor are subject to the kiddie tax. Under the proposed changes, this kiddie tax will increase to line up with the highest marginal tax bracket. In the past, only dividends earned from a private corporation were exposed to the kiddie tax. Effective January 1st, 2016, capital gains on the disposition of shares will also be subject to this tax.

Corporations – Under the proposed changes, the tax rate on investment income earned and retained in a private corporation will increase in line with the highest personal tax bracket. The rates remain at 15.5% for Canadian businesses earning under $500,000 and 26.5% for income above $500,000.

Tax free savings account (TFSA) – For the 2013 and 2014 year, the TFSA contribution limit was $5,500/year. In 2015, the government increased the contribution limit to $10,000 . However, effective January 1, 2016, the contribution limit will revert back to $5,500 from $10,000. Therefore the cumulative contribution limit for 2016 is $46,500.

Child benefits – Starting July 1, 2016, a new program called the Canada Child Benefit (CCB) will replace all of the old child benefit programs, including the Universal Child Care Benefit (UCCB). The new CCB program will calculate payment amounts based on family income and the payments will be non-taxable. No benefits will be provided to families making over $200,000.

Family tax cut – In 2014 and 2015, in certain circumstances, the government provided a tax credit to split income between spouses. An individual at a higher marginal tax bracket was able to split income with their spouse at a lower tax bracket. For the 2016 year, the family tax cut credit will be eliminated.

Tax Planning – As a result of these changes, it is important to plan ahead to avoid unexpected tax implications and maximize benefits that apply to your situation. If you have any questions, feel free to contact us to discuss.

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