Minister of Finance confirms tax and benefit changes

On December 7, 2015, William Morneau, the federal Minister of Finance, confirmed a number of tax changes that had been proposed as part of the Liberal Party election platform. This summary contains highlights of these proposals, which are not yet law. 

Middle class tax reduction

The tax rate of 22%, which currently applies to the second federal tax bracket, will be reduced to 20.5%, effective for 2016 and future years. 

Tax increase for high income earners

A new tax bracket for taxable income in excess of $200,000 is being introduced, effective for 2016. The top federal tax rate of 29% will be increased to 33% with respect to incomes in excess of $200,000 as outlined in the following table.

Existing and proposed personal tax rates
Taxable incomes (2016)* 2015 tax rates (%) 2016 tax rates (%)
Up to $45,282 15.0 15.0
$45,283 to $90,563 22.0 20.5
$90,564 to $140,388 26.0 26.0
$140,389 to $200,000 29.0 29.0
Over $200,000 29.0 33.0

* Tax brackets are adjusted annually for inflation

A number of other income tax rules are tied to the top personal income tax rate. As a result, the proposals confirm that the 33% tax rate will apply to trusts and estates in circumstances where the former top tax rate of 29% applied to income in excess of $200,000, effective for 2016 and future years. Changes will also be made to the calculation of the federal donation tax credit where donations have been made by individuals with taxable income in excess of $200,000.

TFSA contribution room reduced

The TFSA annual contribution limit of $10,000 that applies in 2015 is being rolled-back to the former $5,500 annual limit, effective for 2016. In addition, the indexation rules that applied to the TFSA contribution limits prior to 2015 will be restored effective for 2016 and future years.

Canada Child Benefit 

 The government confirmed that it intends to introduce a new Canada Child Benefit, which will replace the existing Universal Child Care Benefit and consolidate other existing child benefit programs. Tax–free payments under this new program will commence in July 2016.

Family Tax Cut 

The government intends to introduce legislation to eliminate the Family Tax Cut that provides for income splitting for families with children, effective for 2016 and subsequent taxation years.