On October 19, Canadians elected a majority Liberal government for the first time in over a decade. Among the things that will change under this new leadership is how Canadians—both businesses and individuals—are taxed.
While nothing is etched in stone, and we have yet to see which features of the Liberal tax platform will be rolled out, below are some measures that are likely to change over the next four years:
Small business tax rate
In the 2015 federal budget, the Conservative government proposed a reduction in the small business tax rate—dropping it from 11 percent to nine percent over the next four years. While the Liberal government supports this tax reduction, it wants to ensure that high income individuals don't use their Canadian Controlled Private Corporation (CCPC) status as an income splitting tool to reduce personal income taxes. While it's not yet certain how a Liberal government would prevent this from happening, many believe the government may change the eligibility criteria needed to qualify for the small business tax rate.
Employment Insurance (EI) premiums
In 2016, the employee EI premium is set to be $1.88 for each $100 of an employee's salary, up to the maximum insurable earnings of $50,800. The maximum employer contribution is $1,337.06. While this is unlikely to change under a Liberal government, businesses that hire people between the ages of 18 and 24 into permanent positions from 2016 to 2018 may receive a new incentive—a 12-month break from employer EI premiums.
Personal income tax rates
Right now, there are four personal income tax brackets in Canada but, if all goes according to plan, there may soon be five. The Liberals campaigned on lowering the middle tax bracket—which taxes individuals at a rate of 22 percent on income ranging from $44,702 and $89,401—and adding an additional bracket for high income earners. The middle tax bracket would fall from a rate of 22 percent to 20.5 percent, while the new tax bracket would apply to income over $200,000 at a rate of 33 percent.
Income splitting
Income splitting was a measure implemented by the Conservative government. In 2014 and likely 2015, eligible couples with children under the age of 18 are able to transfer up to $50,000 of the higher income spouse's earnings to a lower income spouse—resulting in a maximum annual non-refundable tax credit of $2,000 per family. This tax benefit likely won't last for long, however, as eliminating it was a key component of the Liberal platform.
Tax-Free Savings Accounts (TFSAs)
TFSA contribution limits are another thing that will likely be altered in some way under a Liberal government. The Conservatives raised the maximum annual contribution limit to $10,000 for 2015 and beyond. The Liberals have said they will lower the limit back to $5,500.
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