The new finance minister, Bill Morneau, on Monday, Dec. 7, 2015
introduced changes to individual tax rates in a Notice of Ways and
Means Motion (NWMM).
Delivering on the promised Liberal agenda, effective Jan. 1,
2016, the tax rate on income earned between $45,283 and $90,563
would decrease from 22 per cent to 20.5 per cent and the tax rate
for income over $200,000 would increase from 29 per cent to 33 per
Impact of rate changes on CCPCs
The proposed new highest marginal tax rate of 33 per cent would
affect the taxation of CCPCs significantly. In particular, the
refundable corporate tax levied on investment income earned through
a corporation would see the following changes:
Refundable tax on CCPC investment
income would be increased to 10⅔ per cent from 6⅔ per
The dividend refund rate on taxable
dividends paid by a corporation would increase from 33⅓ per
cent to 38⅓ per cent;
The Part IV tax rate would increase
from 33⅓ per cent to 38⅓ per cent.
If your company is expected to have a balance in its refundable
tax account at the end of Dec. 31, 2015, consider paying a dividend
prior to Jan. 1, 2016 to minimize the impact of the proposed rate
changes on the difference between the dividend refund rate and
individual tax rate payable on dividends.
The top marginal rate would also impact inter vivos trusts;
starting in 2016, they would be taxed at the top rate of 33 per
In addition, the tax credit rate for donations above $200 would
also increase to the new highest marginal tax rate of 33 per cent,
up from the current 29 per cent. This would apply to donations made
after Dec. 31, 2015.
The Tax Free Savings Account (TFSA)
The annual contribution limit for the TFSA, which was increased
to $10,000 in the Conservative government's final year, would
be rolled down to $5,500 for 2016.
Changes to stock options were not addressed in this NWMM;
however, the finance minister indicated in a press conference last
month that any changes with respect to the taxation of stock
options would only take effect from the date they are announced and
would not affect options issued prior to that date.
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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