Recent Federal Tax Changes

December 23, 2015 Published by
Post Categories: Tax Accounting

On December 7, 2015 the Federal government announced numerous personal and corporate tax changes which become effective January 1, 2016. They include:

    1. The Federal personal tax rate for taxable income between $45,282 and $90,563 will be reduced from 22% to 20.5%;

 

    1. The top Federal personal tax rate of 29% will apply to taxable income between $140,388 and $200,000. A new top Federal personal tax rate of 33% will apply to taxable income greater than $200,000;

 

    1. The rate for the Federal charitable donation tax credit in excess of $200 will be increased from 29% to 33%, but only to the extent the individual’s taxable income exceeds $200,000;

 

    1. The previous government enacted an increase of the Tax Free Savings Account (TFSA) contribution limit from $5,500 to $10,000 for 2015 and subsequent years. The new government modified the TFSA limit back to $5,500 for 2016. This limit will be indexed to inflation for years subsequent to 2016;

 

    1. The rate of tax on “split income”, also known as “kiddie tax”, will be increased from 29% to 33%;

 

    1. The flat tax rate applicable to trusts and estates, other than a graduated rate estate (GRE) or a qualified disability trust (QDT), will be increased from 29% to 33%; and

 

  1. Corporate tax rate changes to the taxation of investment income of private corporations, effective January 1, 2016, and pro-rated for taxation years that straddle January 1, 2016 are as follows:
    1. The rate of refundable tax for a CCPC’s investment income will be increased from 6.67% to 10.67%;
    2. The addition to refundable dividend tax on hand (RDTOH) for investment income earned by a CCPC will be increased from 26.67% to 30.67%;
    3. The rate of refundable Part IV on portfolio dividends earned by a private corporation will be increased from 33.33% to 38.33%; and
    4. The rate at which refunds are made out of a private corporation’s RDTOH will be increased from 33.33% to 38.33%.

Those individuals who will become subject to the new 33% tax rate in 2016 may want to consider whether there may be any tax benefit to advancing income into 2015 before the end of the year so as to take advantage of the current highest federal marginal tax rate of 29%.

For Ontario, the combined 2016 Federal and Provincial top personal marginal tax rates are:

 20162015Increase
Income greater than $220K
Regular income53.53%49.53%4.00%
Eligible dividends39.34%33.82%5.52%
Ineligible dividends45.30%40.13%5.17%
Capital gains26.77%24.77%2.00%
Income between $150K and $220K   
Regular income51.97%47.97%4.00%
Eligible dividends37.19%31.67%5.52%
Ineligible dividends43.48%38.29%5.19%
Capital gains25.99%23.99%2.00%