It’s tax time, are you ready?
Ludovic Siouffi is an investment & insurance adviser with Canaccord Genuity Wealth Management. He spoke with guest host Sam Ferris on the Simi Sara Show about the confirmed changes, plus some possible ones, that are coming down the pipeline for 2016.
LISTEN to the full interview here:
Confirmed Tax Changes for 2016
1.) Introduction of a High-Income Tax Bracket
For the 2016 and subsequent taxation years, the Liberals will introduce a high-income federal tax bracket for taxable income above $200,000, to be taxed at a federal tax rate of 33 percent. Currently (for the 2015 tax year) this level of income is taxed at a rate of 29 percent.
2.) Changes to the Federal Personal Income Tax Rate for Middle-Income Earners
The Liberals will lower federal personal income tax rates on taxable income between $45,282 and $90,563 from 22 percent to 20.5 percent for the 2016 and subsequent taxation years.
3.) Reduction of the TFSA Annual Contribution Limit
The Liberals will roll back the Tax-Free Savings Account (TFSA) annual contribution limit of $10,000 (in 2015) to $5,500 starting in 2016. This amount will be indexed to inflation, and the cumulative TFSA contribution room will increase to $46,500 per person.
Pending Tax Changes (Not Yet Confirmed)
Individuals who exercise employee stock options are generally taxed on the difference between the exercise price and fair market value of the stock as employment income, and under current rules may be entitled to a stock option deduction equal to 50 percent of the income if certain criteria are met. It is anticipated that limits will be set on the amount of the deduction that can be claimed for employees with over $100,000 in annual stock option gains.
2.)Changes to Child Tax Benefits
Three existing benefits, the Universal Child Care Benefit, Canada Child Tax Benefit and the National Child Benefit Supplement, are expected to be replaced with a single benefit called the “Canada Child Benefit”. The maximum amount of this tax-free benefit is expected to be $6,400 per year per child under the age of 6 ($5,400 per child between 6 and 17 years old) and will be gradually reduced based on family income. Families with household income of $200,000 or more will not be eligible for this benefit.
3.)Elimination of the “Family Tax Cut”
This federal non-refundable tax credit that allows for income splitting for couples with dependent children under the age of 18 (to a maximum benefit of $2,000) is expected to be eliminated.
Tax Minimization Opportunities
Timing Withdrawals from an RRSP/RRIF
If you are considering withdrawing from a Registered Retirement Savings Plan (RRSP) or withdrawing more than the required minimum from a Registered Retirement Income Fund (RRIF) and do not need the funds currently, there may be an advantage to continuing to hold these funds in the RRSP/RRIF to benefit from the potential to defer an additional 4 percent in taxes and allow your funds to continue to grow on a tax-deferred basis.
A variety of income-splitting opportunities can be explored to shift taxable income from high-income to low-income spouses, common-law partners (CLPs) and even children, including using a spousal loan, creating a family trust, pension income splitting between older spouses/CLPs or using a spousal RRSP.