Canadian Taxation

Federal Budget 2016 – Crib Notes

Published On March 25, 2016 | By Joseph (Ken) | Business, Corporate tax, Government, Personal tax

Canada: Federal Budget 2016 — A Focus On The Middle Class And Continued Scrutiny Of Corporate Tax Avoidance

SMALL BUSINESS

Small Business Rate

“The 2015 Federal Budget (Budget 2015) had announced a reduction of the small business rate from 11 percent to 9 percent over four years beginning in 2016 (along with corresponding changes to the dividend gross-up factor and tax credit rate), but those reductions below the 10.5 percent rate will no longer occur.

Eligible Capital Property (ECP)

“A new CCA class, being Class 14.1, will be created. This Class 14.1 will have a 5 percent annual depreciation rate, which is roughly equivalent to the effective rate that is applied to CEC (i.e., the CEC deduction is at a 7 percent rate on 75 percent of eligible capital expenditures). To retain the simplification objective, the Class 14.1 will generally include the CCA provisions applicable to recapture, capital gains and depreciation (e.g., the “half-year rule”).  Under the proposal, CEC pool balances will be calculated and transferred to the new CCA class as of January 1, 2017, including for taxpayers whose taxation year straddles January 1, 2017. The opening balance of the Class 14.1 will be equal to the balance on December 31, 2016 of the existing CEC pool. For the first ten years, the depreciation rate for Class 14.1 will be 7 percent in respect of expenditures incurred before January 1, 2017.”

FAMILIES

Families with Children

A new Canada Child Benefit (CCB) will replace the Canada child tax benefit and the universal child care benefit with the new CCB payments starting in July 2016. Families with net income (both spouses) not exceeding $30,000 per year will receive the maximum annual benefit of $6,400 per child under age 6 and $5,400 per child aged 6 through 17. Once a family’s net income exceeds $30,000 per year, the maximum annual benefits are reduced based on the family’s net income and the number of children. Although Budget 2016 increases the benefits received by most families, families with an income over approximately $160,000 (depending on the number and ages of children) will no longer receive any benefits. CCB payments are not taxable, will not reduce benefits paid under the GST credit, and will not be added to a taxpayer’s income for the purposes of federal income-tested programs delivered outside of the income tax system.

Income Splitting

“Before Budget 2016, a higher income spouse in a couple with at least one child under the age of 18 could ‘split’ up to $50,000 of income with their lower income spouse, resulting in up to approximately $2,000 in tax savings per year. Budget 2016 proposes to eliminate this credit.

Children’s Fitness and Arts Tax Credits

“Budget 2016 proposes to phase out the children’s fitness tax credits and arts tax credits as follows:

  • 2016: maximum eligible amounts are reduced in half to $500 for the children’s fitness tax credit and $250 for the children’s arts credit; and
  • 2017: both credits will be eliminated going forward.”

Children with Disabilities

“In Budget 2016, children with disabilities will be entitled to receive a maximum annual benefit of $2,750 per year in addition to the CCB, and once the families’ net income exceeds $65,000 this maximum benefit is reduced by the families’ net income and number of children.”

STUDENTS

Canada Student Grants and Repayment of Student Loans

“Budget 2016 proposes to increase Canada Student Grants amounts for post-secondary education for low and middle income families and also for part-time students. Also, it is being proposed that the Canada Student Loans Program Repayment Assistance Plan be revised so that students do not have to start to repay their Canada Student Loan until their annual income exceeds $25,000.”

Education Tax Credits and Textbook Tax Credits

Budget 2016 proposes to eliminate the education tax credits and textbook tax credits (up to $400 and $65, respectively, per month enrolled as a full time student). The tuition tax credit will remain and any income tax provisions that currently rely on eligibility for the education tax credit will be amended to remain as well. This measure will apply effective January 1, 2017, though unused education and textbook credit amounts will remain available to be claimed in 2017 and subsequent years.”

TEACHERS

Teacher and Early Childhood Educator School Supply Tax Credit

“Budget 2016 proposes to give teachers and early childhood educators who buy their own eligible teaching supplies a refundable tax credit of 15 percent for up to $1,000 in expenditures per year.”

SENIORS

Increasing the Guaranteed Income Supplement

“Budget 2016 includes certain measures designed to provide additional financial security to seniors, including increasing the Guaranteed Income Supplement top-up benefit by up to $947 annually for low-income, single seniors, basing benefits on individual seniors’ incomes where couples live apart due to reasons beyond their control. There will also be consultation regarding enhancements to the Canada Pension Plan.”

HIGH INCOME EARNERS

Top Marginal Income Tax Rate

“Bill C-2 was introduced on December 9, 2015, and included a reduction in the second personal income tax rate to 20.5 percent (from 22 percent) and the introduction of a new federal 33 percent personal income tax rate on income in excess of $200,000 (plus the applicable provincial rates). Budget 2016 proposes further consequential amendments to reflect the new top marginal federal income tax rate.”

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About The Author

Joseph (Ken)
(Ken) is a Registered Public Accountant with over 25 years of public practice experience in the accounting profession. Ken specializes in accounting information systems, taxation and financial reporting.

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