Tax Tip:   NEW FEDERAL LIBERAL GOVERNMENT

On October 19, 2015, the Federal Liberal Party, led by Justin Trudeau, obtained a majority of the available seats, giving the required strength to more quickly pass bills and implement the party platform.

On December 7, 2015, the new Federal Liberal Government introduced a number of provisions in the Federal Liberal campaign platform including

  • Federal Personal Tax Rates – commencing January 1, 2016 the following two changes will take effect -

    • tax rate on incomes in excess of $200,000 will increase by 4%, from 29% to 33%,

    • tax rate on the 2nd income bracket (about $45K – $90K) will decrease by 1.5% from 22% to 20.5% (resulting in a maximum savings of about $670).

  • The TFSA annual contribution limit for 2016 and onwards will be returned to $5,500 from the one-time $10,000 limit in 2015.

  • The federal donation tax credit for donations in excess of $200 (made after 2015) will be increased to 33%, but only to the extent the individual has income subject to the new 33% personal tax rate (income over $200,000 for 2016). All taxpayers will still receive a 15% federal donation tax credit on the first $200 of gifts. Taxpayers who do not have earnings in the top tax bracket of 33% will receive a 29% federal donation tax credit on gifts in excess of $200, which is the same credit that was available in prior years.

  • For example, consider a taxpayer that has an income of $225,000, and claims $60,000 of charitable donations. If the donations were made and claimed in 2016, the federal donation tax credit would be $18,732, whereas if the donations were claimed in 2015, the credit would be $17,372.

  • Increase of 4% in general to the refundable tax incurred on investment income for Canadian Controlled Private Corporations. These changes will, in effect, eliminate a tax deferral opportunity which would have otherwise been created with the above 4% increase in top personal tax rates.

Beyond the above tax related changes which have already been introduced into legislation, the Federal Liberals have also proposed a significant number of other tax related changes in their party platform including -

  • Canada Child Benefit – The Universal Child Care Tax Benefit, National Child Supplement, and Child Tax Benefit will be rolled into this new Benefit. A base amount of $6,400 per child under 6 and $5,400 per child aged 6 to 17 will be paid. The payments will be reduced based on a percentage of family income level. No reduction will occur for income below $30,000. Amounts will be non-taxable. Per the Liberal campaign materials, the break-even point compared to the previous regime is family income of $150,000. (i.e. Families under $150,000 should fare better under the Liberal platform and vice-versa.) The Benefit will be fully eroded at approximately $200,000, however, this will vary depending on the number and ages of children. The Federal Liberal Government announced on December 7, 2015 that this proposed program will begin July 1, 2016.

  • Family Tax Cut – The Federal Liberal Government announced on December 7, 2015 their intention to eliminate the Family Tax Cut for 2016 and subsequent tax years. The pension income split will remain.

  • CPP Benefits – Increases to benefits contemplated.

  • EI Premiums – To be reduced from $1.88 to $1.65 per $100 by 2017. Increased availability and flexibility to be introduced.

  • RRIF – The reduction to the minimum withdrawal rates to be maintained in accordance with the 2015 Budget.

  • Teacher and Early Childhood Educator School Supply Tax Credit – The Federal Liberal party platform noted this proposed refundable credit is planned to be effective for 2015. That said, there has been no announcement by the Government as of January 6, 2016 to formalize this credit for the 2015 year. The credit is to be valued at a maximum of $1,000 x 15% = $150. It is uncertain whether receipts would be required or not.

  • Guaranteed Income Supplement – The supplement is proposed to be increased by 10% for single, low-income seniors.

  • Northern Residents’ Deduction – The deduction is proposed to be increased by approximately 1/3rd and indexed annually for inflation. The amount available for those living in the Intermediate Zone will increase by the same proportion.

  • Home Buyers’ Program – Flexibility to be increased for those that have experienced sudden and significant life changes (e.g. job relocation, death of a spouse, marital breakdown etc.).

  • Deduction for Stock Options – Consideration has been given to a cap on the 50% deduction, however, the first $100,000 annually would still qualify. According to the Minister of Finance, the changes will not impact stock options already in effect.

  • Labour-Sponsored Venture Capital Corporation Tax Credit – To be reinstated. Under the Harper Government this Credit was scheduled to be phased out by 2017.

  • Education and Textbook Credits – To be cancelled in favour of increasing student grants. The Tuition Credit will remain.