Liberal Tax Rate Changes Announced
LIBERAL TAX CHANGES ANNOUNCED
Today the Liberals revealed the details on its ‘Tax Cut to Strengthen the Middle Class’ by reducing the federal tax bracket from 22% to 20.5% on incomes between $45,282 and $90,563 for the 2016 year. Those with incomes over $200,000 will pay more tax at a federal rate of 33%. Anyone with ordinary income over $45,282 and under $216,000 will benefit from this tax reduction.
Hear are some points to be aware of.
HOW TO GET A RISK FREE AND TAX FREE 4% RETURN FROM THE TAX SYSTEM (YOU NEED AN INCOME OF MORE THAN 200K)?
CHARITABLE DONATIONS
Are you making a donation in 2015? If so and your income is going to be over $200,000, you may wish to consider waiting until 2016 to make the donation claim. The reason? The donation will result in a higher tax benefit in 2016 than 2015. If you donated $5,200 in 2015 this will get you a tax refund of $2,330 while if you carry it forward to 2016 you will get a tax refund of $2,425, which is the same as a 1-year locked in risk free GIC returning 4% and it is TAX FREE. You can still make the contribution in 2015 and simply make the claim only in your 2016 return.
RRSP CONTRIBUTIONS
Are you earning over $200,000? If so, maybe you will want to consider deferring your RRSP claim until your 2016 filing. In BC, a $20,000 RRSP Contribution at the new top rate of 47.7% will save you $9,540 in tax in 2016 while it will only save you $9,160 in your 2015 filing, once again an opportunity to get a 4% tax free and risk free return.
In Alberta the savings is much more significant.
OK… SOME BAD NEWS NOW
TRUSTS AND ESTATES FLAT RATE INCREASES BY 4%
Top Rate Trusts will in 2016 face a flat tax at a rate of 47.7% in BC (33% Federal + 14.7% Provincial). These are generally personal trusts (ie. family trusts) and estates that are non-Graduated Rate Estates (a definition which generally refers to an estate less than 36 months old). If you are a trustee of one of these, you may wish to consider whether or not you can recognize some income in 2015 opposed to 2016. Maybe sell your gains but keep your losses?
PRIVATE CORPORATIONS EARNING INVESTMENT INCOME
For those who have investments and rental properties in private corporations which may make sense for various reasons will be disappointed to learn that the tax rate on investment income in private corporations is going up too. This is expected though given the increase in the personal rates:
Tax on investment income (non-capital gains) will increase from 45.67% to 49.67% (a 4% increase).
Tax on dividends received will increase from 33.33% to 38.33% (a 5% increase).
However, some good news is that the rate at which refundable taxes will be refunded is being increase from 33.33% to 38.33%, which may allow some to access previously paid refundable taxes quicker.
ONE OTHER THING… TFSA contribution limit increase for 2016 will be $5,500 opposed to the $10,000 in 2015.
To read more see go to http://www.fin.gc.ca/n15/15-086-eng.asp
