On March 22, 2016, the federal government tabled its first budget. Several changes that had been feared were not included in it. There really were no big surprises.
Canada Child Benefit
The budget proposes to replace the current Canada Child Tax Benefit (CCTB) and the Universal Child Care Benefit (UCCB) with the new Canada Child Benefit (CCB). This new program will be initiated in July, 2016.
Many readers will be familiar with the CCTB and the UCCB. The new CCB 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 maximum benefits will accrue to families whose annual income is in the $30,000 to $65,000 range. An additional $2,730 will be available for any child who is eligible for the disability tax credit.
Again, this new program will begin in July, 2016 and will be paid monthly. Entitlements will be based on family income for 2015. These amounts will not be taxable and will not reduce benefits paid with respect to the GST/HST credit.
Income Splitting Credit
In 2014, the previous government introduced The Family Tax Cut credit. That provided an income splitting mechanism that allowed an individual to notionally transfer up to $50,000 to his or her lower-income spouse or common law partner, provided they had a child who was under 18 at the end of the tax year. The 2016 budget eliminates this program. Please note that this change does not affect current legislation with respect to the splitting of pension income. There had been some concern prior to the budget that this might also have been eliminated, but the status quo remains as far as the splitting of pension income is concerned.
Children’s Fitness and Arts Tax Credits
The budget proposes to phase out these credits. For 2016, the credits will be reduced by half, and will be totally eliminated in 2017 and subsequent tax years. As well, the education and textbook credits will also be eliminated effective January 1, 2017.
School Supply Tax Credit
This is a new credit introduced in the budget with respect to the cost of educational supplies. The credit is available to teachers, and will allow an employee who is an “eligible educator” to claim a 15% refundable tax credit based on up to $1,000 of expenditures made by the employee for “eligible supplies.” This new credit applies to purchases as of January 1, 2016.
Old Age Security (OAS)
The 2012 budget announced that eligibility for OAS would gradually be increased from 65 to 67.The 2016 budget has reversed this and will restore eligibility for OAS benefits to 65.
Guaranteed Income Supplement (GIS)
The 2016 budget also announced an increase to GIS benefits of up to $947 per year.
Canada Pension Plan (CPP)
The 2016 budget announced that the government plans to launch a consultation process that will give Canadians an opportunity to share their views on enhancing the CPP. The goal for making a decision on this issue is before the end of 2016.
Elimination of Tax-Free Switches in Mutual Fund Corporations
A number of Canadian mutual funds are structured as “switch funds”. The benefit of this type of structure is that investors are able to exchange funds within the mutual fund corporation’s different funds without triggering a disposition for tax purposes. The 2016 budget will change these rules, effective October 1, 2016. Thereafter, such switches will be taxable events.
Donations of Real Estate and Private Company Shares
The budget made clear that the government will not be proceeding with the implementation of the previous government’s measure that would have eliminated capital gains tax on the sale of appreciated private company shares and real estate if the proceeds are donated to charity within 30 days. This change is scheduled to come into effect on January 1, 2017.
Changes in Personal Income Tax Rates
The budget proposes changes in the rate of personal income tax. For taxable income between $45,283 and $90,563, federal tax rate will drop from 22.0% to 20.5%. On the other hand, the federal tax rate on taxable income over $200,000 will rise from 29% to 33%.
The Federal Deficit
Deficits of $29 billion are projected for each of the next two years.
Balancing the Budget
While the government has expressed a general commitment to balancing the budget, a date to achieve this is to “be determined later.”
The federal debt is expected to rise by $20 billion in 2016 and $37 billion the following year. Funding this debt will be accomplished by issuing additional government bonds.
President, HG Partners Limited
Director, Private Client Group &
Senior Financial Advisor,
HollisWealth Advisory Services Inc.
This article was prepared solely by Howard Goodman who is a registered representative of HollisWealth Advisory Services Inc. (a member of the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation). The views and opinions, including any recommendations, expressed in this article are those of Howard Goodman alone and they are not those of HollisWealth Advisory Services Inc.
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