Liberal Tax Platform
By Jin Wen
The new Liberal government’s first federal budget focuses on growing the middle class and strengthening the economy. This article will discuss some personal income tax measures introduced in the 2016 budget.
Canada Child Tax Benefit
Currently, financial assistance is provided to families with children under age 18 through the Canada Child Tax Benefit (CCTB) and the Universal Child Care Benefit (UCCB). The CCTB is a non-taxable benefit that is paid monthly, based on adjusted family net income and the number of children in the family. The UCCB provides a taxable benefit of $160 per month for each child under the age of six and $60 per month for each child older than 5 and younger than 18. The 2016 budget proposes to replace the CCTB and UCCB with a new Canada Child Benefit.
The Canada Child Benefit will provide a maximum benefit of $6,400 per child under the age of 6 and $5,400 per child age 6 through 17. When the adjusted net family income of the taxpayer exceeds $30,000, the benefit will be phased out at specified rates depending on the size of the family and its adjusted net family income.
The 2016 budget also proposes to continue to provide an additional amount of up to $2,730 per child eligible for the disability tax credit. The phase-out of this additional amount will generally align with the phase-out of the Canada Child Benefit.
Canada Child Benefit payments are proposed to start in July 2016. The UCCB and CCTB will be eliminated for months after June 2016.
Income Splitting Credit (Family Tax Cut)
The tax law currently provides a non-refundable income splitting tax credit for couples with at least one child under the age of 18. The credit allows a higher-income spouse or common-law partner to notionally transfer up to $50,000 of taxable income to another spouse or common-law partner to reduce the couple’s total income tax liability by up to $2,000. The 2016 budget proposed to eliminate the income splitting tax credit for the 2016 and subsequent taxation years.
Children’s Fitness and Arts Tax Credits
The 2016 budget proposes to phase out the children’s fitness and arts tax credits by reducing the 2016 maximum eligible amounts to $500 from $1,000 for the children’s fitness tax credit and to $250 from $500 for the children’s arts tax credit. The supplemental amounts for children eligible for the disability tax credit will remain at $500 for 2016. Both credits will be eliminated for the 2017 and subsequent taxation years.
Education and Textbook Tax Credits
The 2016 budget proposes to eliminate the education and textbook tax credits, but not the 15% non-refundable tax credit on eligible fees for tuition and eligible examination fees paid to certain educational institutions.
This measure will apply effective January 1, 2017. Unused education and textbook credit amounts carried forward from years prior to 2017 will remain available to be claimed in 2017 and subsequent taxation years.
Marginal Income Tax Rates
On December 7, 2015, the government announced a reduction of the second personal income tax rate to 20.5% from 22% and the introduction of a 33% personal income tax rate on individual taxable income in excess of $200,000, effective for the 2016 and subsequent taxation years. The top marginal income tax rate would be 53.53%. The 2016 budget proposes consequential amendments to reflect the new top marginal income tax rate for individuals.
(Jin Wen is a tax manager at Grant Thornton LLP and is a Canadian Chartered Professional Accountant (CPA). Jin can be reached at Jin.Wen@ca.gt.com)