Chartered Accountants
THE TAX
CORNER Federal Budget 2016 Finance Minister Bill Morneau tabled the 2016 Federal Budget on March 22, 2016. The following is an overview of the key components and changes to the budget that effect personal taxes as well as corporate taxes.
Personal Tax Matters Child Tax Benefit Effective July 1st, 2016 a new monthly tax-free payment will replace the Universal Child Care Benefit (UCCB) with amounts being dependent upon the age of the child as well as family household income. Children under the age of six are eligible for a yearly amount of up to $6,400, while children between the ages of six and eighteen are eligible for a yearly amount of up to $5,400. As household income increases above $30,000, these amounts are reduced to the point of being completely eliminated for families with income over $190,000. Elimination of Children’s Arts & Fitness Tax Credits In past years, taxpayers have been entitled to a children’s arts tax credit and a children’s fitness tax credit for children under the age of sixteen. The budget will eliminate both credits by the end of 2017. Education & Textbook Tax Credit Elimination Effective January 1st, 2017 the education and textbook tax credits will be eliminated, however it is worth noting that individuals will still be able to claim their existing carry forward tax credits following this elimination. They will also still be able to claim tuition tax credits. Seniors Guaranteed Income Supplement Starting in July of 2016 an increase of up to $947 annually has been proposed for seniors entitled to the Guaranteed Income Supplement. Elimination of Income Splitting The budget proposes to eliminate the Family Income Splitting Credit in 2016. The measure, which was introduced in 2014, had previously allowed families, with children under eighteen, to reduce tax liabilities up to $2,000 by transferring a maximum of $50,000 in taxable income from the higher income spouse to their partner.
Chartered Accountants
THE TAX
CORNER Teacher and Early Childhood Educator School Supply Tax Credit Commencing January 1st, 2016 a teacher with a valid teachers certificate is entitled to claim a 15% refundable tax credit on up to $1,000 in eligible supplies bought for use in a school or care facility. Marginal Tax Rate Changes There have been two tax rate changes for individuals, the first is a reduction in the federal rate from 22% to 20.5% for income between $45,283 and $90,563. The second was the introduction of a new top marginal federal rate of 33% for income over $200,000. Tax Free Savings Accounts The Minister announced that the limit for the tax-free savings account contributions will be reduced from $10,000 a year to $5,500 per year in 2016. Employee Stock Options Prior to the tabling of the budget, there were many rumours of changes to the taxation of employee’s stock options. The budget made no mention of stock options and much to the delight of executives, the favourable treatment continues for now.
Corporate Tax Matters Partnerships & The Multiplication of The Small Business Deduction The budget identified a common structure that circumvented the specified partnership income rules. In this structure, corporations owned by partners (or those related to partners) would charge fees for services performed to their respective partnerships. This structure allowed the multiplication of the small business deduction amongst partners in the partnership. The budget has extended the specified partnership rules to deny the multiplication of the small business deduction in the circumstances discussed above. Capital Gain Inclusion Rates There were also rumours of changes to the capital gain inclusion rates prior to the budget. Under current law, only 50% of capital gains are taxable. Rumours persisted that the inclusion rates may increase to 75%. However, the government decided against the increase and only 50% of capital gains continue to be taxable.
Chartered Accountants
THE TAX
CORNER Small Business Tax Rates Previously tabled reductions to the small business tax rate to 9% were proposed to take effect from 2017 to 2019. This proposal has been halted and as such the rate will remain at 10.5%.