Each year, the federal government releases an annual budget outlining proposed changes to the country’s tax rules designed to benefit Canadians and the economy. What does this mean for you? It means that some of the changes in the budget might have a direct impact on you and your family. Let’s take a look at how the changes for 2016 affects your tax situation this year:
Income tax rates
- New tax bracket for high-income earners
Do you make more than $200,000 a year? If so, the income you make in excess of $200,000 will now be taxed at a higher rate of 33%. This new tax rate will also be reflected in the following:
- Calculation of the charitable donation tax credit
- Tax rate applicable to inter vivos trusts
- Calculation of the split income tax on certain income of individuals under the age of 18
- Tax cut for the mid-income individuals
The tax rate for the personal income tax bracket of $45,282 to $90,563 has been reduced by 1.5%; from 22% to 20.5%. This means an individual earning $60,000 a year will now save approximately $220 in taxes compared to last year!
- Cancellation of the reduction in the tax rate for small businesses
While the small business tax rate was previously scheduled to drop from 11% to 9% between 2015 and 2019, the government has decided to keep the tax rate at 10.5% for all future years.
Families with children
- Elimination of the family tax cut
The income splitting tax credit (family tax cut) of up to $2,000 that was available to Canadian couples with children is no longer available beginning in 2016.
Note: This doesn’t affect pension income splitting.
- New! Canada child benefit
Starting July 2016, parents with children under the age of 18 might be eligible for the new Canada child benefit (CCB) payments. The CCB is a monthly tax-free payment, which means no surprises at tax time!
Although this benefit replaces the universal child care benefit (UCCB), Canada child tax benefit (CCTB), and national child benefit supplement (NCBS), nine out of ten families will get more money under this benefit. The amount you get will depend on your net family income from the previous year and the number of children in your care.
To get the CCB, remember to file your return on time every year, even if you don’t have any income!
- Elimination of the Universal child care benefit (UCCB), Canada child tax benefit (CCTB), and national child benefit supplement (NCBS)
Effective July 2016, the UCCB, CCTB, and the NCBS are replaced by the new Canada child benefit (see above).
- Children’s fitness and arts tax credits
Both the children’s fitness and arts tax credits are being reduced by 50% in 2016. So how much can you now claim under each tax credit?
- Up to $500 per child enrolled in a qualifying fitness program
- Up to $250 per child enrolled in a qualifying arts program
If you have a child who qualifies for the disability tax credit, the supplement amount for both tax credits remains at $500.
Refer to the Canada Revenue Agency (CRA) website for more information on the eligibility requirements for these tax credits.
Note: Both credits will be eliminated in 2017.
Seniors
- Eligibility age for the Old Age Security program is restored
The age of eligibility for the Old Age Security program is restored to 65 in 2016 (from 67 in 2015). For Canadians turning 65 this year, it means money back in your pockets!
- Increase to the Guaranteed Income Supplement for single seniors
Starting in July 2016, the Guaranteed Income Supplement top-up benefit will be increased by up to $947 per year for single seniors, supporting those who rely on Old Age Security and Guaranteed Income Supplement benefits.
- New! Home Accessibility Tax Credit (HATC)
For seniors and disabled individuals (those eligible for the disability tax credit) who have to renovate or alter their homes to make them more accessible, a new home accessibility tax credit is being rolled out for 2016 and subsequent tax years. Under the HATC, you can claim up to $10,000 for expenses paid to make your home more accessible.
Refer to the CRA website for more information on the eligibility requirements.
Investments
- Restoration of the Labour-sponsored Tax Credit
The federal labour-sponsored tax credit was reduced from 15% to 10% in 2015 and was to be further cut to 5% for 2016, with a complete removal of the tax credit in 2017. However, to support provinces that run related programs to allow small and medium-sized businesses get venture capital, the new government has reversed these changes for 2016 and restored the labour-sponsored tax credit to 15%.
- Tax free savings account (TFSA) limits back to original
It is never too late to save! Although the TFSA limits for 2016 have been reduced back to $5,500 from $10,000 in 2015, you can still see your hard earned money grow tax-free in a TFSA account.
Click this link for more information on TFSAs.
Other changes
- New! Teacher and Early Childhood Educator School Supply Tax Credit
To provide relief to teachers and early childhood educators who often pay for the cost of supplies needed to teach students from their own pockets, a new teacher and early childhood educator school supply tax credit has been introduced. Teachers and childhood educators will be able to claim a 15% refundable tax credit on up to $1,000 paid in expenses, provided that their employers certify these supplies were bought for the purpose of teaching or enhancing a learning environment.
So, teachers, remember to save those supply receipts!
Refer to the CRA website for more information on the eligibility requirements.
- Northern residents deduction
In 2015 and previous tax years, if you were a resident (for at least six consecutive months) of certain areas in northern Canada, you could deduct $8.25 per day from your taxable income under the residency deduction component of the northern residents deduction. For 2016, this deduction amount is increased to $11 per day.
- Overseas employment tax credit phase-out
This credit was being phased out and is no longer claimable for 2016.
