Tax implications of the 2016 budget
The 2016 federal budget included a number of measures that will impact Canadian taxpayers. Here are some of the tax aspects of the budget which will impact individuals and small business owners.
1. Reduction of middle-income tax bracket
The middle-class income tax bracket would be cut from 22% to 20.5%, starting this year. That means if your taxable income is between $45,282 and $90,563, you’ll pay less tax.
2. New High Net worth (HNW) tax bracket
The Liberals introduce a new 33% tax bracket for high net worth people who earn more than $200,000 each year.
3. Increasing the attention on tax evasion
The Liberals will invest $444.4 million over five years to help the Canada Revenue Agency ensure tax evasion is difficult. This money will go to hiring more tax auditors and specialists, developing robust business intelligence infrastructure, increasing verification activities and investigating criminal tax evaders.
The Liberals will also spend $351.6 million over the next five years to help the Canada Revenue Agency improve its ability to collect outstanding tax debts.
4. Closing tax loopholes for HNW
For those private corporation business owners, this Budget will close loopholes that allow them to use a life insurance policy to make distributions tax free.
5. Retirement age rolled-back to 65
The retirement age will stay at 65. This reverses the Conservatives’ decision to raise it to 67 beginning in 2023.
6. Low-income seniors get 10% more in GIS benefits
Starting in July 2016, low-income seniors who rely almost exclusively on Old Age Security and Guaranteed Income Supplement (GIS) benefits can expect a 10% increase to their total maximum GIS benefits.
7. Introduction of the Canada Child Benefit
Starting in July, the Universal Child Care Benefit (UCCB) and Canada Child Care Benefit (CCTB) will be replaced with one non-taxable Canada Child Benefit (CCB).
Under the current system, families with one child and with annual earnings of $30,000 would receive $4,852, after tax, if their child was under age 6, or $3,916 if their child is aged 6 to 17.
Under the new Canada Child Benefit, these low-income families could see $6,400 per child under age 6 and up to $5,400 per child per year for children aged 6 to 17. As a result, most Canadian families will see an average increase in child benefits of almost $2,300 starting this year.
8. Increased Child Disability Benefits
An additional amount of up to $2,730 for each child who is eligible for the Disability Tax Credit will be added to the existing Child Disability Benefit.
9. Elimination of income splitting for couples with kids
The prior Conservative government’s introduction of the Family Tax Cut allowed couples to income split and save up to $2,000 in taxes each year. This income splitting for couples with children under age 18 will be eliminated.
10. Elimination of fitness or arts tax credit for kids
Currently, families can get a tax credit of $150 and $75 per child through Children’s Fitness and Arts Tax Credits (up to $1,000 and $500 in eligible expenses, respectively).
There will be a 50% reduction of the maximum eligible expenses for the Children’s Fitness and Arts Tax Credits in 2016, and a complete elimination of both credits by 2017.
11. Elimination of education and textbook tax credit
This Budget eliminates the Education and Textbook tax credits, effective Jan. 1, 2017.
12. Introduction of School Supply Tax Credit
Budget 2016 has introduced a new credit for the cost of educational supplies. The credit is available to teachers and early childhood educators who incur the cost of supplies for the purpose of teaching or otherwise enhancing students’ learning in the classroom or learning environment. This new credit will allow an employee who is an “eligible educator” to claim a 15% refundable tax credit based on up to $1,000 in expenditures made by the employee for “eligible supplies.”
Teachers will qualify as eligible educators if they hold a teacher’s certificate that is valid in the province or territory in which they are employed. Similarly, early childhood educators must hold a certificate or diploma in early childhood education.
13. Elimination of capital gains tax exemption on donations
Budget 2015 included a proposal to provide an income tax exemption on capital gains of donated private corporation shares or real estate beginning in 2017. To qualify, the cash proceeds from the disposition would need to be donated to a registered charity or other qualified done within 30 days. This is now eliminated in 2016 Budget.
Budget 2016: How budget could affect Canadian communities