2016 Personal Tax Changes
On October 19, 2015 Canada held its 42nd general election. As a result, Canadians now have a new Liberal government and Prime Minister. With the change in government also came changes to the Canadian personal taxation system.
Personal Tax Rates and Brackets
Perhaps the most significant change to Canada’s tax system was the changes to the marginal tax brackets. Aptly named the “Middle Class Tax Cut” the changes have reduced the tax rates on the middle tax brackets. That is, tax rates for individuals making between $45,282 and $90,563 have dropped by 1.50%.
Unfortunately, not everyone gets the benefit of paying less tax. In order to account for the reduction of the middle rates, the highest income tax bracket rates were increased. Those making between $200,000 and $220,000 will experience a tax rate hike of 2.44%. Additionally, a new income bracket has been created, the new highest bracket will apply to individuals earning over $220,000 and will be taxed at 53.53%.
Tuition and Education
Another significant change affects tuition credits. Starting in January 2017, the federal textbook and education credits will be eliminated. Subsequently, in September 2017, the Ontario tuition and textbook and education credits will also be removed. Carry forward amounts will continue to exist until utilized by the taxpayer. Note that the federal portion of the tuition tax credit will still remain.
Tuition and textbook credits were often a significant tax benefit for those who utilized them. In order to avoid affecting students too harshly, the government has provided a 50% increase to the Canada Student Grants program and has given newly graduated students additional time to begin repaying any government funded student loans.
In an attempt to give students of lower income families a break when it comes to tuition costs, the Government of Ontario plans to offer grants to cover the cost of post-secondary tuition, beginning in 2017. Students with family income less than $50,000 may receive a grant large enough to cover their entire tuition fee!
This strict threshold provides opportunity for a considerable amount of savings with smart income and tax planning. Plan an appointment with you RLB advisor to discuss whether you can take advantage of these planning strategies.
For the Whole Family
Many of the changes have affected credits and benefits that families have been using for multiple years. Most of these tax changes are removing credits that families previously enjoyed. Below is a brief listing of the changes:
1) Canada Child Care Benefit:
The newly revamped tax-free Canada Child Care Benefit will provide money to families based on family income and number of children. These payments will be disbursed on a monthly basis and will not need to be included as income on your tax return. This benefit replaces the current Canada Child Tax Benefit and Universal Child Care benefit. Most families will continue to receive similar amounts under the new program. However, families with income greater than $65,000 may receive less of a benefit.
2) Family Tax Cut:
Ironically, the Family Tax Cut didn’t make the cut. Starting in 2016 this income-splitting measure has been eliminated. Previously, the higher income earner in a family could shift income to their spouse for a credit of up to $2000.
3) Fitness and Art Tax Credits:
Whether it is hockey, soccer, football, dance, piano, or singing, your children’s fitness and arts related activities will no longer provide as much of a benefit come tax time.
Specifically, these credits have been cut in half in 2016, with the fitness credit being changed to a refundable tax credit. A refundable credit means that if you have zero taxes payable prior to receiving any benefit from the credit, you will receive the amount of the credit as a refund.
These credits have been proposed for complete elimination in 2017.
4) Child Care Expenses:
Families may now claim additional child care expenses on their tax returns. Allowable expenses have increased by $1,000 per child up to $8,000 for a child under the age of 6 and $5,000 for a child between 7 and 16 years old. Expenses that qualify include daycare, nanny services, and more, discuss with your RLB Advisor on what other expenses apply.
5) Teacher Supply Credit
Teachers and early childhood educators are now eligible to claim a 15% refundable tax credit on up to $1,000 spent on school supplies. This is in recognition of the fact that many educators were paying out of pocket for classroom expenses.
6) Benefits for Seniors
The Guaranteed Income Supplement benefit received by low income seniors has increased. Amounts for Old Age Security and Guaranteed Income Supplement will eventually be indexed against cost of living, providing for further increases in future years to these benefits.
Tax changes will affect everyone differently, contact your local RLB Advisor to find out how they can affect you at 1-866-822-9992, or visit rlb.ca for more information.