Tax Bulletin 2016
Hello Can'eh'dian MMM'ers!
After some deliberation regarding the 2016 Budget, I've put together brief summary of changes which I think are most applicable to the general readership here.
That being said, there are many specific, and what I would call "boutique" changes to the ITA this year which won't be covered below. If you do have questions regarding these, put them up here or PM me and I will happily give some direction.
Overall, this Budget represents a drastic shift in overall economic policy from the previous decade or so. This is to be expected as clearly we have a new Prime Minister.
Coles Notes - more spending, enhanced benefits, and more tax for some.
Small Business? What's that?
Small Businesses were largely ignored this budget. This is a large change from previous Governments.
Small Business Rate
There was a previously legislated change which was promised to be kept in tact during Election season, which was to keep the small business rate declining from 10.5% (2016) all the way down to 9% come 2019. This has been reversed entirely.
The small business rate will now remain at 10.5% for the foreseeable future.
Other speculated changes
Other than a few changes to break up some tax avoidance using small business rate eligible corporations, there were no other changes here.
It was speculated far and wide that owners of Professional Corporations would no longer be allowed to split income - this didn't happen. It was speculated that even for regular CCPC owners this wouldn't be available, which didn't happen. There were rumours of a wholesale change and the disappearance of the small business rate for CCPC's - this didn't happen. Heavy sigh of relief.
These changes may happen in the future, so we brace for the worst and hope for the best.
Personal Tax
The larger focus here in this budget was Personal Tax. Here are the major changes.
TFSA Limit
Bye bye $10,000 - hello $5,500 and indexing in future years. We all knew this was happening - just reiterating that it did happen.
Bracket Changes
The 2nd bracket rate has been adjusted downwards from 22% to 20.5% effective in the 2016 taxation year. This will help many Canadians (albeit not as big a change as one would think in the grand scheme).
A new bracket has been introduced for the over $200k crowd now, which is 33%. This is a whopping change and leads to marginal tax rates in excess of 50% for many provinces for the top bracket. Ontario is 49.53 percent, but when including the Ontario Health Premium it is around 53%. You can almost hear the Beatles playing in the background.
Income Splitting
Pensions are still yes (and are a sacred cow). The Income Splitting introduced for 2014 and 2015 is gone in 2016. That simple.
Teachers
$1,000 non-refundable tax credit on eligible supplies. This represents a savings of $150 per year.
Northern Resident Deduction
The daily rate has now increased from $8.25 to $11.00 per eligible taxpayer. Same rules regarding 6 months applies.
Child Care Benefit
This is what you've all been waiting for!
The UCCB and CCTB are gone as of June 2016. Commencing July 2016.
Education and Tuition Tax Credits will be gone as at 2017 (50% 2016)
Fitness and Arts Tax Credits will be gone as at 2017 (50% 2016).
It is broken down like this. Sorry if it gets messy.
Family Income Under $30k
Each Child under 6 - $6,400 per annum
Children 6 to 17 - $5,400 per annum.
Family Income from $30k to $65k
1 Child Household - total benefit phaseout of 7% per dollar.
2 Child Household - total benefit phaseout of 13.5% per dollar.
3 Child Household - total benefit phaseout of 19% per dollar.
4 or More (The Brady Bunch) - total benefit phaseout of 23% per dollar.
Family Income Over $65k
On remaining benefit after above...
1 Child Household - total benefit phaseout of 3.2% per dollar.
2 Child Household - total benefit phaseout of 5.7% per dollar.
3 Child Household - total benefit phaseout of 8% per dollar.
4 or More (The Brady Bunch) - total benefit phaseout of 9.5% per dollar.
NOTE: THESE AMOUNTS ARE TAX FREE - this is an important distinction.
If you earn over $200,000 as a family net income, you'll receive very little or nothing.
As always I look forward to your questions and commentary - hope you have found this a helpful summary of the most pertinent changes.
All the best,
CPA CB