What's New In Tax

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

The federal tax rate on the second tax bracket ($45,282 to $90,563 of taxable income in 2016) dropped 1.5% in 2016 to 20.5% from 22%. The maximum tax saving is $679.
A new federal income tax bracket was added in 2016 to increase the tax rate on taxable income over $200,000 to 33%, up 4% from 29% in 2015.

Tax-free savings account (TFSA). The annual contribution limit decreased to $5,500 in 2016 from $10,500 in 2015. The cumulative contribution limit is $46,500 as of 2016.
Corporate class mutual funds. The ability to exchange funds offered by the same mutual fund corporation — and not realize a capital gain for tax purposes — ceased at the end of 2016. Exchanges are now considered a disposition for tax purposes with the selling proceeds equal to the market value of the fund at the time of the exchange.
Linked Notes. These investments provide an investment return based on an index. Changes were made to the tax rules to have the return, as of October 1, 2016, taxed as interest income. Before these changes, an investor could sell the notes prior to maturity and be subject to tax as a capital gain (50% taxable) rather than interest income (100% taxable).
Flow-through shares. The 15% Mineral Exploration Tax Credit has been extended to share agreements entered into by March 31, 2017.
Life insurance. Changes were introduced to reduce some of the income tax advantages that could arise when a life insurance policy is transferred to a corporation.
Lifetime capital gains exemption. The capital gains exemption on a sale of shares of a small business corporation increased to $824,176 in 2016 from $813,600 in 2015. The capital gains exemption limit remains at $1,000,000 with respect to the sales of an eligible farm or fishing property.

Old Age Security (OAS). OAS eligibility has returned to age 65. The plans to have OAS eligibility deferred to 67 (effective 2023) have been cancelled.
The threshold for the OAS repayment or – “clawback” – is $73,756 for 2016. Are you approaching 65 and subject to a clawback once 65? If so, consider deferring your OAS (for up to five years). For each month OAS is deferred an additional .6% is added to your OAS entitlement!
Enhanced Canada Pension Plan (CPP). Phase-in begins in 2019. CPP payments are slated to be increased from 25% of pensionable earnings to 33%. Higher CPP contributions will start in 2019. The contribution rate is being increased — over a period of 2019 to 2025 — to 5.95% (from 4.95%) of salary/wages up to the year’s maximum pensionable earnings. The maximum pensionable earnings for 2016 is $54,900 and $55,300 for 2017. It is expected to be $82,700 in 2025.

Home Accessibility Tax Credit. As of 2016, when an individual incurs costs to make their dwelling easier to access, increase their mobility in the dwelling or to reduce the risk of harm while in or accessing the dwelling, a tax credit of 15% of up to $10,000 of expenditures per year can be claimed. Eligible expenditures include wheelchair ramps, walk-in bath tubs, wheel-in showers and grab bars.

2017 is the last year for the First-time Donor’s Super Credit. This provides and extra tax credit of 25% on up to $1,000 of donations where an individual (and spouse/common law partner) have not donated in the past five years.
Donations by high income taxpayers. For 2016 and future years, 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 taxable income over $200,000.
Private corporation shares and real estate. The government is not proceeding with the 2015 proposals to permit individuals to donate proceeds from the sale of private corporation shares and real estate and pay no income tax on the capital gain realized on the sale.
Donations made after death. Tax changes became effective in 2016 to permit more flexibility in the claiming of a tax credit for a donation made after the death of an individual.

The “family tax cut” – or Income Splitting Tax Credit - was eliminated in 2016. This credit previously permitted some families to save up to $2,000 in tax.
Canada Child Benefit. This tax-free payment replaced the taxable Canada Child Tax Benefit and Universal Child Care Benefit payments. For families with less than $30,000 of income the maximum benefit is available - $6,400 per child under 6, $5,400 per child 6 to 17 and where a child is disabled an additional amount of $2,700. The benefit decreases when family income exceeds $30,000.
Child Fitness and Art Credits. These credits are being eliminated in 2017. For 2016:
maximum eligible for Child Fitness Tax Credit decreased to $500 (from $1,000 in 2015).
maximum eligible for Children’s Arts Tax Credit decreased to $250 (from $500 in 2015).
additional $500 amount available for both credits where child is disabled.

Education and textbook tax credits. Federal Education and Textbook Tax Credits (not the tuition credit) are being eliminated in 2017. Any unused education and textbook credit amounts at the end of 2016 can be carried forward to be claimed in 2017 and subsequent years.
School Supply Tax Credit. Beginning in 2016, teachers and early childhood educators can claim a 15% tax credit on up to $1,000 of supplies purchased for teaching or facilitating learning that are used in an elementary or secondary school or regulated child care facility.

Principal Residence Exemption. Beginning in 2016, a sale of a principal residence must be reported on a tax return even if that gain is fully exempt from tax due to the Principal Residence Exemption. Restrictions have been added in claiming the exemption where a dwelling was purchased by an individual while he or she was a non-resident of Canada.
Employment Insurance (EI) premiums. In 2017, the Employment Insurance rate reduces to 1.63% from 1.88% of insurable earnings. However, the maximum insurable earnings increase to $51,300 from $50,800.
MyCRA mobile application. Canada Revenue Agency has introduced a mobile app which allows users to view notice of assessments, tax return assessing status, benefit and credit information and RRSP/TFSA contribution room and more.
For businesses, the eligible capital property rules ceased at the end of 2016. Eligible capital property is now simply considered capital property and subject to capital cost allowance (CCA, tax depreciation). Gains on sale of the property are now taxed as capital gains rather than as business income.

Brian J. Quinlan, CPA, CA, CFP, TEP

Campbell Lawless LLP Chartered Professional Accountants

Suite 900, 8 King Street East, Toronto, ON M5C 1B9

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