The new Liberal government introduces changes to individual tax rates starting January 1, 2016
The new finance minister, Bill Morneau, on Monday, Dec. 7, 2015 introduced changes to individual tax rates in a Notice of Ways and Means Motion (NWMM).
Tax rates
Delivering on the promised Liberal agenda, effective Jan. 1, 2016, the tax rate on income earned between $45,283 and $90,563 would decrease from 22 per cent to 20.5 per cent and the tax rate for income over $200,000 would increase from 29 per cent to 33 per cent.
Impact of rate changes on CCPCs
The proposed new highest marginal tax rate of 33 per cent would affect the taxation of CCPCs significantly. In particular, the refundable corporate tax levied on investment income earned through a corporation would see the following changes:
- Refundable tax on CCPC investment income would be increased to 10 2/3 per cent from 6 2/3 per cent;
- The dividend refund rate on taxable dividends paid by a corporation would increase from 33 1/3 per cent to 38 1/3 per cent;
- The Part IV tax rate would increase from 33 1/3 per cent to 38 1/3 per cent.
If your company is expected to have a balance in its refundable tax account at the end of Dec. 31, 2015, consider paying a dividend prior to Jan. 1, 2016 to minimize the impact of the proposed rate changes on the difference between the dividend refund rate and individual tax rate payable on dividends.
Trusts
The top marginal rate would also impact inter vivos trusts; starting in 2016, they would be taxed at the top rate of 33 per cent.
Donations
In addition, the tax credit rate for donations above $200 would also increase to the new highest marginal tax rate of 33 per cent, up from the current 29 per cent, to the extent the taxpayer has income subject to the 33 per cent rate. This would apply to donations made after Dec. 31, 2015.
The Tax Free Savings Account (TFSA)
The annual contribution limit for the TFSA, which was increased to $10,000 in the Conservative government’s final year, would be rolled down to $5,500 for 2016.
Stock options
Changes to stock options were not addressed in this NWMM; however, the finance minister indicated in a press conference last month that any changes with respect to the taxation of stock options would only take effect from the date they are announced and would not affect options issued prior to that date.
To assess the potential impact of the proposed upcoming tax amendments to you and your family or to explore potential tax planning opportunities, contact your Collins Barrow tax advisor.