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Federal Budget - 2016

Well, the much-anticipated first federal budget of the Trudeau Liberal era has arrived. The focus was on improving the Canadian economy and also removing most of the vestiges of the Conservatives. As was expected, there is a big deficit, meaning that the country is going further into debt. The deficit for fiscal 2017 will be close to $30 billion. Much of the spending is directed at infrastructure, including public transit, housing, and green technology. Enhancements to the EI program include expanded access, a reduction in the waiting periods, and an extension of benefits in certain regions of the country. The seniors’ Guaranteed Income Supplement amounts have been increased, and OAS eligibility will remain at age 65. Below are some brief comments focused on taxation for individuals and corporations.

 

Individuals

The taxable Universal Child Care Benefit (UCCB) will be eliminated as of June 2016. In its place will be a Canada Child Benefit that will be tax free and is based on family situation and income levels. The maximum will be $6,400 per child under 6 and $5,400 for those aged 6 to 18. The amount is reduced for households with a total income over $30,000 and eliminated for households with an income over $190,000.


The family tax cut (income splitting) has been eliminated for 2016 and onward, making 2015 the last year that this is available. This does not change seniors’ pension income splitting, which remains.
Students were able to claim tuition as well as education and textbook credits in the past. Effective in 2017, the education and textbook credits will be eliminated, but any amounts carried forward will remain available and the tuition credit continues. Canada Student Grants for low- and middle-income families will be enhanced to compensate.


There is a new refundable tax credit for teachers and early childhood educators to claim 15% of up to $1,000 in eligible expenditures for the 2016 tax year and onward.
Children’s fitness and arts credits will be reduced for 2016 and eliminated for 2017.


The rate for the middle federal income tax bracket has been reduced from 22% to 20.5% effective 2016, and a new higher tax bracket (at a rate of 33% for income over $200,000) has been introduced. There are some other adjustments for high-income-earning individuals, including increases in donation credits.
There are no inclusion rate increases on capital gains which remains at 50%.

Corporations

There is now more focus on improving CRA communications as well as preventing unintended tax advantages that businesses and high-net-worth individuals may be able to obtain through tax planning.


The planned gradual reduction in corporate tax rates for small businesses from 11% to 9% has been frozen at the current 10.5%. This results in a combined (federal and provincial) small business rate for Nova Scotian corporations of 13.5%.


Most active corporations pay a lower rate of tax on the first $500,000 ($350,000 in Nova Scotia) of taxable income. This is referred to as the small business deduction. The budget includes provisions to clamp down on partnership and corporate structures designed to gain access to multiple small business deductions.


There have been no further changes in the taxation of dividends from small corporations after 2016, but the taxation of dividends for 2016 will be higher than 2015 to reflect the reduction in federal corporate tax from 11% to 10.5%.


There are changes in the Eligible Capital Property whereby the ECE pool will be converted to a regular Capital Cost Allowance (CCA) class. We have not examined this change in detail, but very few of our clients should be significantly impacted by this.


There have been no changes with respect to the payment of dividends between operating and holding companies, as outlined in Section 55(2) of the Tax Act. Please consult with us with respect to this matter.

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