On December 7, 2015, the Minister of Finance, Bill Morneau,
confirmed the intention of the Liberal Government to move ahead
with their proposal to reduce the 22% personal income tax rate to
20.5% to strengthen the middle class. He further announced an
increase in the tax payable by the wealthiest 1% of Canadians by
announcing an increase in the tax rate on taxable income over
$200,000 to 33%. The Notice of Ways and Means Motion introduced
before Christmas confirmed these changes will be effective January
Before these new rules were introduced, many sector
organizations wondered whether the Government would also introduce
amendments to the rate of the charitable tax credit, raising the
concern that if the Government did not also amend the credit rates
for charitable gifts wealthy donors may be less likely to support
their favourite causes.
The good news is that the Department of Finance recognized this
issue and introduced amendments to s.118.1(3) which governs the
rates applicable to the charitable tax credit. These changes were
identified as being directly consequential to the increase in the
top rate of tax. It is worthy to note the identification of the
importance of this issue and commend Finance for addressing it,
particularly given the short time frame the Department had to put
these changes together.
The revised credit mechanism is somewhat complicated. Rather
than simply increase the rate of the credit for gifts over $200 to
the highest tax rate - which is how it had worked previously - we
now have a calculation which, in effect, applies a credit of 33%
(the top rate) to the extent that individuals have income taxed at
How will it work? Canadians will be eligible for a credit of 15%
on the first $200 of gifts and 29% on gifts that are above $200
unless such gifts are eligible for a credit of 33%. How do you know
if your gift is eligible for a 33% credit? That is where the
calculation comes in. It is easiest to explain this by way of an
example and, helpfully, the notes tabled by the Department of
Finance with the draft legislation contained the following:
In the case of an individual that has $215,000
of taxable income and makes $20,000 in total gifts in 2016, the
individual's tax credit under subsection 118.1(3) is calculated
as the total of:
$30, being 15% of the first $200 of total gifts
$4,950, determined as 33% of $15,000, being the lesser of
the amount by which the individual's total gifts exceeded
$200 ($19,800), and
the amount by which the individual's taxable income
exceeded $200,000 ($15,000); and
$1,392, determined as 29% of $4,800, being the amount by
which the individual's total gifts for the year ($20,000)
exceeds the total of $200 and the amount of the individual's
total gift to which the 33% rate applied ($15,000)
In this case, the individual's 2016 tax
credit for gifts would total $6,372 ($30 = $4,950 + $1,392).
The logic in the new calculation is clear. It allows top rate
earners a credit that reflects the top rate of tax that they pay.
It should be noted that the Act was also amended to confirm that
these changes do not apply to donations made in years prior to
2016, even if they are carried forward to 2016. Clearly,
Finance realized some might see that as a planning tool.
Charities should appreciate this change being made so quickly
and without a subsequent need to press for the amendment to be
made. Canadians who give to charity may find the calculation
confusing but at the end of the day, it is justified for top
To conclude, and to be complete, the Notice of Ways and Means
Motion tabled also confirms the Liberal Government's previously
announced reduction in the limit on amounts that may be contributed
to Tax Free Savings Accounts from $10,000 in 2015 to $5,500 for
2016 and subsequent years.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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