It’s important for us to stay on top of issues that pertain to you and your family’s financial health. Below is a brief overview of the Federal budget introduced by the new Liberal Government on March 22nd . We will adjust our tax planning strategies as required for our individual clients.
Repealing the Federal Balanced Budget Act:
The balanced budget legislation enacted by the previous government will be repealed to allow a gradual return to a balanced budget. (This may be okay if we get back to balanced budgets as soon as possible. If not, we are downloading these expenses to our children.)
For families with children under 18:
A new Canada Child Tax Benefit (CCTB) of up to $6400 per child under 6 and $5400 per child aged 6 -17. This replaces the Universal Child Care Benefit (UCCB). (This will slightly increase the benefits to families with children.)
The Family Tax Cut, which allowed a certain degree of income splitting, will be eliminated. (This benefit primarily helped families with one spouse at a lower income.)
The children’s fitness and arts tax credit of 15% to a maximum of $1000 of eligible expenses for children under 16 will be eliminated. (This will be a tax increase for those that were eligible.)
The education tax credit that provided a 15% tax credit of $400/mth. of full time and $120/mth. of part time schooling and the textbook tax credit of 15% of $65/mth. of full time enrolment and $20 part time is eliminated as of January 2017. (This will increase the tax that students will pay on income above the Basic Personal Exemption. Typically this tax credit was either transferred to a parent or carried forward until the student earned taxable income so this will be a tax increase for many families with students)
The tuition tax credit on eligible tuition fees remains. (With the typical annual tuition of approximately $7000 at a University, this $1000 tax reduction will continue to help.)
Grants to students from low-income families will increase from $2,000 to $3,000 per year. For middle-income students, the grants will increase from $800 to $1,200. And grants for part-time students will increase from $1,200 to $1,800. (These grants offset most of the increase from the tax credit deductions above for low and middle income families but not for higher income families.)
For incorporated small business owners:
The corporate small business tax rate is to remain at 10.5% and will not decrease gradually to 9% as previously scheduled.
For investors holding Corporate Class mutual fund shares in non-registered accounts:
Starting October 1, 2016, investors in corporate class funds will no longer be able to switch between funds in the corporation on a tax-deferred basis. Any switches made by investors will be considered a taxable disposition at fair market value. (Although the tax benefit of holding these shares has declined there are still advantages to these structures with respect to lower annual taxable distributions and the ability to structure future income withdrawals tax effectively. We will be reviewing portfolios and will make recommendations where appropriate to re-allocate investments before the Oct. 1st deadline.)
Canada Pension Plan enhancements are planned with a decision to be made before the end of 2016.
Old Age Security eligibility will be restored to 65 from 67 and single seniors and seniors living apart for reasons beyond their control will be eligible for additional benefits. (While all of these measures will enhance retirement income for many seniors, it will be at the expense of those in the workforce.)
For Income earners above $200,000:
There is a new 33% top Federal personal tax rate for incomes over $200,000. There were no changes to the lower federal tax brackets.
Although this is not a full rendition of what the budget had to offer, we feel these items will impact our clients the most. If you would like to discuss any of these changes, please feel free to give us a call.