On October 19, 2015, Canada elected a Liberal government for the
first time in 10 years, as Justin Trudeau's party won a
majority of the seats in the House of Commons. In their election
platform, the Liberals made several promises aimed at increasing
tax revenue. Although the platform does not detail the timing of
these changes, Mr. Trudeau's plan for his first 100 days
includes introducing, as part of his government's first bill, a
set of significant changes to income tax rates and tax credits for
1. More taxes
Currently, there are four federal income tax rates, topping out
at 29% for earnings above $138,586. The Liberals have promised to
create a new tax bracket of 33% for income over $200,000. When
provincial tax rates are factored in, the result will be a top
marginal rate of over 50% in many provinces. For example, in
Ontario, the top marginal rate will be 53.53%, in Québec, it
will be 53.31%, in Alberta, it will be 48% (taking into account
proposed provincial increases) and in British Columbia, it will be
47.70%. Tax-wise, the most expensive place to live in Canada will
be New Brunswick, with a top tax rate of 58.75%.
For federal tax purposes, for someone earning taxable income of
$300,000, this would mean an extra $3,330 in taxes. For someone
earning $500,000, it would mean an extra $11,330 in taxes. It is
likely that these changes will be effective beginning January 1,
The Liberals are also promising to cancel income splitting,
which allowed some families to reduce their annual tax bill by up
2. A cap on the stock option
Currently, if the required conditions are met, when an executive
exercises a stock option, a one-half deduction is available to
allow for capital gains like tax treatment on exercise. There is
currently no limit on the amount of the option benefit that is
eligible for the one-half deduction. The Liberals have promised to
introduce a cap of $100,000 on the amount that can be claimed
through this stock option deduction. Unfortunately, there is
currently no clarity on whether the cap would apply to all company
stock options, including those that are issued by Canadian
controlled private corporations. The Liberals have stated that
stock options are a useful tool for start-up companies.
3. A reduction in TFSA contribution
In the 2015 federal budget, the Conservatives increased the
annual tax-free savings account (TFSA) contribution limit from
$5,500 to $10,000. The Liberals have promised to reduce the limit
back to $5,500 starting in 2016, but not to retroactively change
the contribution limits. In 2016, aggregate TFSA contribution room
will likely grow but to $46,500 (as opposed to $51,000).
What can be done in the interim?
Employers can advise their employees as to the new tax rate
changes set out above.
Employers and external counsel can review any existing
compensation plans in light of the proposed changes to the stock
option deduction rules.
Executives can contribute to a TFSA to maximize contribution
room in 2015.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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