On March 22, 2016, Finance Minister Bill Morneau unveiled the first federal budget since the Liberal government’s election in October 2015. As with all federal budgets, the items introduced are proposals and will have to go through the regular procedures before being ratified. We anticipate that most of the proposals will become part of our reality for 2016.
As expected there will be a massive spend on infrastructure over the next 5 years. In our opinion this was a necessary step in trying to boost economic growth in Canada which has been sluggish and is facing some headwinds. The amount of spending is appropriate however, as with all spending, how effectively this money is put to work is far more important. We will need to keep a keen eye on the effects of this spending over the coming years.
As for the tax highlights from the budget, the winners include lower and middle income families and retirees, while the losers look to be high income families and wealthy individuals. Attached is a brief summary of the most significant and material items. For a full breakdown of the key measures in the budget see “tax highlights from the 2016 Federal Budget”. http://click.enews.ci.com/?qs=d18d07ff480999b778066d6af461b295c779a1c6ac887795f4e2c145ffe17caf6c004945a3d1bf86
1. No changes to the personal income tax rates – When the Liberals came into power last year they decreased federal tax on the second tax bracket to 20.5% and increased federal tax to 33% for income over $200 000. This was effective Jan 1, 2016 and will remain in place.
2. Taxation of corporate class mutual funds – The structure of these funds has been very useful in deferral of tax in non-registered accounts. Tax will now have to be paid when switching between funds in the same mutual fund class structure starting in September of 2016.
Measures for Families
1. To simplify and consolidate existing child benefits, budget 2016 proposes that the Canada child tax benefit (CCTB) and the universal child care benefit (UCCB) be replaced with the new Canada Child Benefit (CCB). The new benefit payments will begin in July 2016. The new CCB WILL BE INCOME TESTED. For families with incomes below $150 000 per year, you will most likely receive an increase in the amount you are eligible for. For family incomes above $150 000 you will see a reduction and could potentially see no benefit.
2. Elimination of the family tax cut – no more income splitting for those with one parent at work and one working in the home. The maximum benefit was $2000 per year and will no longer exist starting in 2016.
3. Phase out of the fitness and arts tax credit – This tax credit will be phased out by providing half of the 2015 credit amount for 2016 and then will be eliminated for 2017.
1. Restoring Old Age Security (OAS) ages – A few years ago we began a gradual change to having this government pension available at age 67 instead of age 65. The proposal is to now revert back to having OAS payments begin at age 65.
2. THERE IS NO CHANGE TO PENSION INCOME SPLITTING – there has been some misconception and concern in this area but it will not change.
Corporate Tax Measures
1. No change to corporate income tax rates in 2016 however the planned decrease in future years will no longer exist.
2. The 4% increase to the tax rate on investment income earned in a Canadian-controlled private corporation proposed after the election will remain for 2016. In addition, tax applicable to dividends earned by a CCPC has also increased from 33.3% to 38.3% with a similar change to the dividend refund rate on taxable dividends paid by a corporation.
As always, if you are lost in the acronyms or would like clarification on any of the proposals, we welcome your calls.