On Tuesday March 22nd, 2016, Bill Morneau tabled his first budget as the Federal Minister of Finance – here are ten things that we think you should know about the proposals presented in Budget 2016 may affect the taxes that you pay.
Business Tax Measures
- Corporate Tax Rates: Small incorporated businesses are currently subject to a federal tax rate of 10.5% in addition to the applicable provincial or territorial tax rate. The government proposes to hold this rate steady at 10.5% for the coming years, cancelling previously scheduled reductions by 0.5% per year for 2017, 2018 and 2019.
- Clean Energy: Budget 2016 proposes to introduce new accelerated and expanded Capital Cost Allowance (CCA) rates for specified clean energy generation and conservation equipment as well as electrical vehicle charging stations and electrical energy storage equipment. These expanded and accelerated CCA rates give businesses access to preferential tax deductions on qualifying purchases on purchases made after March 22, 2016.
- Small Business Tax Planning: A selection of measures to block different tax plans that structure corporate ownership to multiply the small business deduction within an economic unit have been proposed. These measures will apply to taxation years that begin after March 22, 2016.
- Cumulative Eligible Capital: The current Cumulative Eligible Capital (CEC) regime allows for an annual 7% deduction on 75% of eligible expenditures. Budget 2016 proposes to replace the existing CEC regime with a new Capital Cost Allowance (CCA) class that will allow for a 5% deduction on 100% of eligible expenditures effective for January 1, 2017. Other standard CCA rules will apply to this new class.
Personal Tax Measures
- Family Tax Cut: Effective for 2016 and future tax years, Budget 2016 proposes to cancel the Family Tax Cut that allowed couples with children under the age of 18 to split income when one parent has a higher income than the other. This credit had a maximum benefit of $2,000.
- Education Credits: Similar to changes recently announced in the Ontario Budget to education credits are proposed. The federal government will be cancelling education and textbook tax credits for qualifying post-secondary education, effective January 1, 2017. These refundable credits were worth up to $70 per month of post secondary education that a taxpayer attended in the year.
- Fitness and Arts Credits: Existing children’s fitness and arts credits are proposed to be phased out over the coming year. The existing credits of $1,000 and $500 respectively are proposed to be halved for the 2016 tax year and eliminated for the 2017 tax year.
- Personal Tax Rates: As was previously announced, the tax rate for the second federal personal income tax bracket, effective on income between $44,701 and $89,400 (2015 figures), is proposed to be reduced from 22% to 20.5% for the 2016 tax year. This reduction is coupled with a new federal tax bracket on income over $200,000 with a tax rate of 33%, increasing the top marginal federal tax rate from 29%. When coupled with the applicable provincial rates and surtaxes, the top marginal rate in several jurisdictions is now over 50% and as high as 54% on income over $200,000.
- Updated Credits and Taxes: Tied to this increase in the top federal marginal tax rate are proposed updated rates for taxes and credits that are based on the top marginal tax bracket such as the rate for federal tax credits on donations in excess of $200 and the tax rate on personal services business income earned by corporations. These changes will also come into effect for the 2016 tax year.
- Canada Child Benefit: Effective July 1, 2016, the taxable Universal Child Care Benefit and non-taxable Canada Child Tax Benefit will be cancelled and replaced with a new, enhanced non-taxable Canada Child Benefit that focuses support on families with net incomes under $65,000 per year. You can use this calculator to get a rough idea of what your family may receive under the new plan.
To view the tax measures supplementary information to Budget 2016, please see the Department of Finance’s website here (160 pages).
Some of these changes may have an impact on your personal and business taxes so please touch base with your accountant if you have any questions!