23
Mar

2016 Federal Budget Highlights – Personal Income Tax

There has been many proposed changes that will affect personal taxes; some of the things that may affect you are highlighted below.

Canada Child Benefit
Budget 2016 proposes to replace the Canada Child Tax Benefit (CCTB) and Universal Child Care Benefit (UCCB) with a new Canada Child Benefit. The Canada Child Benefit will provide a maximum benefit of $6,400 per child under the age of 6 and $5,400 per child aged 6 through 17. The benefit will be phased out based on adjusted family net income as follows:

Phase-Out Rates (%)# of children (for phase-out rates) $30,000 to $65,000 Over $65,000
1 7.0 3.2
2 13.5 5.7
3 19.0 8.0
4 or more 23.0 9.5

 

Budget 2016 proposes to continue to provide an additional amount of up to $2,730 per child eligible for the disability tax credit and the phase-out rates will generally align with the Canada Child Benefit.

Entitlement to the Canada Child Benefit for the July 2016 to June 2017 benefit year will be based on adjusted family net income for the 2015 taxation year.

The rules governing the Canada Child Benefit will generally be based on those which apply to the old CCTB. For example:

  • The Canada Child Benefit will be paid monthly to eligible families.
  • Amounts received under the new Canada Child Benefit will not be taxable and will not reduce the goods and services tax credit. They will also not be included in income for the purposes of federal income-tested programs delivered outside of the income tax system, such as the Guaranteed Income Supplement, the Canada Education Savings Grant, the Canada Learning Bond, the Canada Disability Savings Bond and the Canada Disability Savings Grant.
  • To be eligible for the Canada Child Benefit, an individual must be a resident of Canada for tax purposes and must reside with the qualified dependant and be the parent who primarily fulfils the responsibility for the care and upbringing of the qualified dependant or be a shared custody parent.

Canada Child Benefit payments will start in July 2016. The UCCB and CCTB will be eliminated for months after June 2016.

It is also noted that the phase-out rates have been in-creased as compared to what was presented in the Liberal Election Platform. Therefore, the point at which the Bene-fits will be fully eroded has slightly dropped.

Retroactive Child Benefit Related Payments
Budget 2016 proposes to allow a taxpayer to request a retroactive payment of the Canada Child Benefit, CCTB or UCCB in respect of a month on or before the day that is 10 years after the beginning of that month, effective for requests made after June 2016. Previously, retroactive payments could be requested as far back as when the programs were introduced.

Income Splitting Credit (Family Tax Cut)
Budget 2016 proposes to eliminate the income splitting tax credit for couples with at least one child under the age of 18 for the 2016 and subsequent taxation years. The credit was previously valued at up to $2,000 and based on a notional transfer of up to $50,000 of taxable income.

Pension income splitting, however, is not being removed or modified.

Northern Residents Deduction
Budget 2016 proposes to increase the maximum residency deduction that each member of a household may claim from $8.25 to $11 per day and, where no other member of the household claims the residency deduction, to increase the maximum residency deduction from $16.50 to $22 per day for the 2016 taxation year. Residents of the Intermediate Zone will be entitled to deduct half of these increased amounts.

Teacher and Early Childhood Educator School Supply Tax Credit
Budget 2016 proposes to introduce a teacher and early childhood educator school supply tax credit. This 15 per cent refundable tax credit is based on an amount of up to $1,000 in expenditures made by the “eligible educator” employee in a taxation year for “eligible supplies”.

For the cost of supplies to qualify for the credit, employers will be required to certify that the supplies were purchased for the purpose of teaching or otherwise enhancing learning in a classroom or learning environment. Receipts will be required.

This tax credit will not be available in respect of an amount that has already been claimed under any other provision of the Income Tax Act.

Eligible Educator – 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. Certain early childhood educators will qualify as well.

Eligible Supplies – Expenditures will be eligible for the teacher and early childhood educator school supply tax credit if they were made to purchase supplies for use in a school or in a regulated child care facility for the purpose of teaching or otherwise enhancing students’ learning in the classroom or learning environment. Eligible supplies may include both durable goods (eg. games and puzzles, books etc.) and consumable goods (eg. construction paper, art supplies etc).

This measure will apply to supplies acquired on or after January 1, 2016.

Education and Textbook Tax Credits
Budget 2016 proposes to eliminate the education and textbook tax credits after 2016. The tuition tax credit will remain available. Changes will be made to ensure that other income tax provisions – such as the tax exemption for scholarship, fellowship and bursary income – that currently rely on eligibility for the education tax credit or use terms defined for the purpose of the education tax credit will be unaffected by its elimination. Unused credits carried forward from prior years will remain available to be claimed after 2016.

Children’s Fitness and Arts Credits
Budget 2016 proposes to phase out these credits by halving the 2016 maximum eligible amounts to $500 from $1,000 for the fitness credit (which will remain refundable) and to $250 from $500 for the arts credit. Both credits will be eliminated for 2017 and later years. The supplemental amounts for children eligible for the disability tax credit will remain at $500 for 2016.

Top Marginal Income Tax Rate – Consequential Amendments
Budget 2016 proposes further amendments to reflect the new top marginal income tax rate for individuals that will:

  •  provide a 33 per cent charitable donation tax credit (on donations above $200) to trusts that are subject to the 33 per cent rate on all of their taxable income;
  •  apply the new 33 per cent top rate on excess employee profit sharing plan contributions;
  •  increase from 28 per cent to 33 per cent the tax rate on personal services business income earned by corporations; and,
  •  amend the definition of “relevant tax factor” in the foreign affiliate rules to reduce the relevant tax factor from the current 2.2 to 1.9.

These measures will apply to the 2016 and later taxation years. The charitable donation tax credit measure will be limited to donations made after the 2015 taxation year. In the case of the rate increase on personal services business income earned by corporations in taxation years that straddle 2015 and 2016, the rate increase will be prorated according to the number of days in the taxation year that are after 2015.

The measure will also extend the proposed 33 per cent charitable donation tax credit in Bill C-2 (which currently applies to donations made after 2015) to be available for donations made by a graduated rate estate during a taxation year of the estate that straddles 2015 and 2016.

If you want to know how the changes may affect you personally, please contact our office to speak with one of our professionals today.

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a post such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.


Gregory & Associates