What’s New In Tax

Here is a summary of some recent income tax—and some non-income tax—changes.

Personal Tax Rates Changing In 2016!

• Middle class tax rate decrease

For 2016, the new federal government has proposed the tax rate on taxable income of $45,282 to $90,563 will drop 1.5% - from 22% to 20.5%. The maximum tax saving will be $679.

• High income tax rate increase

Also proposed for 2016 is a tax rate increase on taxable above $200,000. The tax rate is to increase by 4% - from 29% to 33%.

Seniors

• Lower minimum RRIF withdrawals

Beginning in 2015, the minimum annual RRIF withdrawals for persons aged 71 to 94 have been reduced. This offers greater flexibility for RRIF holders to leave funds in their RRIF for a longer period of time before they must be withdrawn.

Those that made a 2015 RRIF withdrawal at the previous higher minimum withdrawals percentages have the option of returning the excess to their RRIF by February 29, 2016. The amount returned to the RRIF by that date can be claimed as a deduction on their 2015 personal income tax returns.

• Home accessibility tax credit

Tax relief will be available – beginning in 2016 - for individuals that incur costs to allow them to make their dwelling easier to access, permit them to be more mobile or functional within the dwelling or to reduce the risk of harm while in their dwelling or accessing their dwelling. A non-refundable tax credit of 15% is available on qualified expenditures of up to $10,000 per year. The dwelling must be the principal residence of the individual.

To qualify, the individual must be 65 or older or eligible to claim the disability tax credit. However, another individual can claim the credit where the qualified individual is related (i.e. spouse, common-law partner, parent or child) and they live in the same dwelling.

To be eligible, the expenses must be of an enduring nature and integral to the dwelling such as wheel chair ramps, walk-in bath tubs, wheel-in showers and grab bars.   Maintenance costs such as routine repairs, gardening, housekeeping and security will not qualify. Interest costs to finance a renovation will not qualify nor will the cost of household appliances.

• Old age security

The OAS repayment – or “clawback” - for 2015 begins at a net income of $72,809. Where an OAS recipient has net income amount above the threshold their OAS needs to be partially or fully repaid. The repayment is calculated as 15% of net income above $72,809 to the extent of OAS received. A full clawback will occur at net income of $118,055.

Investors

• Simplified foreign investment reporting

Tax form T1135 “Foreign Income Verification Statement” is completed when certain foreign assets are held that have with an aggregate tax cost of over $100,000 at any time in a year. The disclosures on this form were greatly expanded in 2013 and simplified somewhat in 2014. For 2015, the disclosures will again be simplified for those that hold foreign assets with an aggregate cost of $100,000 but less than $250,000 throughout the year.

• Tax free savings account (TFSA)

The 2015 TFSA contribution limit is $10,000 (up from the 2014 limit of $5,500). The new federal government has proposed that the contribution limit for 2016 will return to $5,500 and future year contribution limits will be indexed to inflation.

• Increase in tax rate on non-eligible dividends

In addition to the coming 2016 personal tax rate changes announced by the new federal government, investors receiving non-eligible dividends – generally those sourced from smaller private corporation business profits or corporations earning investment income – will find the personal income tax rate has increased slightly. The is due to the decrease in the corporate income tax rate (discussed below under “Business”) and the need for the Income Tax Act to integrate the corporate and personal income tax systems.

• Lifetime capital gains exemption

The 2015 capital gains exemption on the sales of qualified small business corporations is $813,600 – an increase from the 2014 limit of $800,000. This exemption limit will continue to be indexed to inflation in future years. With respect to the sales of qualified farm and fishing property, the capital gains exemption limit has now been increased to $1,000,000.

Business

• Corporate income tax rates

Beginning in 2016, the federal corporate income tax rate – that applies to the first $500,000 of business income earned by a Canadian controlled private corporation (CCPC) each year – is set to decrease from the current 11% to 10.5% in 2016 and then to slide to 9% by 2019.

• Payroll remittances

In 2015, some employers were able to reduce their payroll remittance frequency as the threshold levels of average monthly withholdings used to determine the frequency were increased. The average monthly withholding threshold for remitting two times per month was increased to $25,000 (from $15,000) and to $100,000 (from $50,000) for remitting four times per month.

New employers are currently required to make monthly payroll remittances for the first year of operations. Beginning in 2016, the frequency can be reduced to quarterly where average monthly withholdings are less than $3,000.

Raising Children

• Universal child care benefit (UCCB) payments

Effective January 1, 2015, the monthly payment was increased to $160 (from $100) for a child under 6 and a new $60 monthly payment began in respect of children 6 to 17.

• Child care expenses

The maximum tax deductible limits were increased for 2015. The maximum deductions are $8,000 (up from $7,000) for a child under 7, $5,000 (up from $4,000) for a child 7 to 16 and $11,000 (up from $10,000) for a child eligible for the disability tax credit.

• Child fitness tax credit

The amount eligible for the credit was increased to $1,000 effective for 2014 and subsequent years. The maximum tax savings from the credit is $150 per child under 16 (or under 18 if eligible for the disability tax credit). In 2015, this credit became a refundable tax credit. Prior to 2015, the credit could only be used to reduce a tax liability.

• Child tax credit

Beginning with 2015, this credit is no longer available.

Charitable donations

• Donations by high income taxpayers

It is proposed that, beginning in 2016, taxpayers with taxable income over $200,000 will receive a federal credit of 33% on donations in excess of $200 – an increase from 29%. The 33% credit will be calculated to the extent the taxpayer has income over $200,000.

• Donating to private corporation shares and real estate

Individuals donating public corporation shares to a charity pay no income tax on the accrued capital gain at the time of the gift. The charity provides the individual with an official receipt for a dollar amount equal to the value of the shares at the time of gift. The individual then claims the charitable donation tax credit in completing their personal income tax return.

These favourable tax rules are to be extended – beginning in 2017 – to the donation of cash proceeds from the sale of private corporation shares and real estate. The charity would be able to issue a cash receipt for the cash donated within 30 days of the disposition of the shares or real estate. To qualify for the special tax treatment, the sale must be made to a purchaser that deals at arm’s length with both the seller and the charity.

Registered disability savings plans (RDSPs)

When RDSPs were introduced, a concern was raised that an individual would not be able to take advantage of an RDSP if they did not have capacity to enter into a contract. In response, the government, in 2012, introduced a temporary measure to permit a family member to become the plan holder of an RDSP where an adult individual lacked capacity. This measure is now extended to 2018.

No cheques!

Government of Canada cheques are to be phased out as of April 1, 2016 as the government will increase the use of direct deposit of income tax refunds, OAS, CPP, UCCB, GST credits, etc.

CRA encourages that payments you make to them (i.e., income tax instalments, income tax liabilities) be made via online banking.

Brian J. Quinlan, CPA, CA, CFP, TEP, Campbell Lawless LLP Chartered Professional Accountants, Toronto, ON  

Tel: (416) 364-0702, ext. 230. Email: bjq@clcpa.ca