On December 7, 2015, the new Liberal government presented
legislation in the House of Commons that will enact a number of tax
changes based on their federal election platform. With their
majority, they will be able to quickly pass this legislation and
the changes will take effect on January 1, 2016.
As promised, the government has reduced the rate of tax on what
was the middle tax bracket. The tax rate will be reduced from 22%
to 20.5%. This will mean a savings of 1.5% on an individual's
income between $45,282 and $90,563. The government also introduced
a new fourth tax bracket to fulfil its promise to increase the tax
on the top 1% of income earners. Individuals will pay federal tax
of 33% on income in excess of $200,000. In Ontario this will result
in a top marginal tax rate of 53.53%.
With the introduction of the new top tax bracket, the government
is making a number of consequential changes that will also impact
individuals. They include:
An increased federal donation tax credit for individuals with
earnings subject to the new 33% tax rate;
An increased federal tax on split income (the "kiddie
tax") from 29% to 33%; and
An increase in the federal tax rate on inter vivos trusts to
the new 33% rate.
Another election promise was the rollback of the Tax Free
Savings Account (TSFA). For 2016 and subsequent years the TSFA
limits will revert back to the original rules. This means that the
2016 contribution limit will be $5,500 and future year's limits
will be indexed to inflation and rounded to the nearest $500. The
$10,000 limit for 2015 remains, so for those that did make use of
the extra room there is no need to make a withdrawal. For those
that did not make the additional contribution not all is lost as
your carry-forward room will reflect this one year spike.
There were a number of corporate tax changes that are related to
the new personal tax bracket. Changes include:
An increase in the surtax on investment income earned by
Canadian Controlled Private Corporations (CCPC) from the current 6
2/3% to 10 2/3%;
Changes to the calculation of refundable dividend tax on hand
to take into account the new surtax rate;
Increase the dividend refund rate from the current 33 1/3% to
38 2/3% on dividends after 2016 paid by private corporations,
limited to the corporation's refundable dividend tax on hand
Increase in the part IV tax rate on dividend income from the
current 33 1/3% to 38 1/3%.
The government did not introduce changes to the Child Benefit or
a repeal of the income splitting for families with children. They
did announce that these changes will be introduced in their first
budget. The Department of Finance release made clear that pension
income splitting would not be repealed.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).