On December 7th, 2015, the federal government tabled a Notice of
Ways and Means Motion that proposes several personal and corporate
tax changes to be effective January 1st, 2016. Some of these
changes were originally proposed in the Liberal Party Tax Platform
(see our previous
Tax Letter: Liberal Party Platform).
Personal tax rates
The tax rate for the second lowest tax bracket ($45,282 to
$90,563 of taxable income) will decrease from 22% to 20.5%, which
can result in tax relief of up to $679 per person. There will also
be a new top federal tax rate of 33% for individuals with taxable
income in excess of $200,000. For 2015, the top federal tax rate is
29% on taxable income over $138,586.
The table below provides the top marginal tax rates for 2015 and
As a result of the increase in the highest federal tax rate, the
federal tax rate payable by inter-vivos trusts (e.g. family trusts)
and testamentary trusts that are not Graduated Rate Estates will
also increase to 33% (29% in 2015).
Tax Free Savings Account
The annual Tax Free Savings Account contribution limit will be
reduced from $10,000 to $5,500 for 2016 and later years. The
$10,000 contribution limit still applies to the year 2015.
Donation tax credit
Currently, the federal donation tax credit is calculated at a
rate of 15% for the first $200 of charitable donations plus 29% for
charitable donations that are in excess of $200. The 33% tax rate
will apply in calculating an individual's donation tax credit
for charitable donations over $200 to the extent that he/she has
taxable income in excess of $200,000.
For example, if an individual has $220,000 of taxable income and
charitable donations of $10,000, the 33% tax rate will be used to
calculate the credit on the donation amount that is over $200 (i.e.
$9,800). If the individual donated $30,000 instead, the 33% tax
rate will be used to calculate the credit on $20,000, the 15% rate
will be used to calculate the credit on the first $200 and the 29%
rate will be used to calculate the credit on the remaining $9,800.
The 33% rate will not be applied to unused charitable donations
from a year that is prior to 2016.
Corporate tax rates – investment income earned by private
Investment income that is earned by a Canadian-controlled
private corporation ("CCPC") is taxed at a higher rate
than non-investment income (i.e. business income). This higher tax
rate includes a refundable component that a CCPC can recover as it
pays taxable dividends to shareholders. The related tax rates and
refund rate will be increased to account for the new 33% personal
tax rate as follows:
the refundable additional Part I tax on investment income of
CCPCs will be increased by 4% from 6.67% to 10.67%;
the refundable portion of Part I tax on investment income of
CCPCs will be increased by 4% from 26.67% to 30.67%;
the refundable Part IV tax on portfolio dividends received by
private corporations will be increased by 5% from 33.33% to 38.33%;
the rate at which refunds are made out of a private
corporation's pool of refundable taxes previously paid
("Refundable Dividend Tax on Hand") when it pays
dividends will be increased by 5% from 33.33% to 38.33% of
For a taxation year that begins before 2016, the refundable tax
rate increase and the dividend refund rate increase will be
prorated for the number of days in the taxation year that are after
2015, except that the increase in Part IV tax on portfolio
dividends will apply to dividends received after 2015.
Foreign asset reporting
Canada Revenue Agency recently released a new version of form T1135 Foreign Income Verification Statement to
be used for the 2015 and later taxation years. Taxpayers whose cost
of all specified foreign property held at any time during the year
was over $100,000 and less than $250,000 may use a simplified
method of reporting which is akin to the reporting method on form
T1135 prior to 2013.
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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