Depending on your tax bracket, the new government may either cost you or save you big bucks.
Here are some of the Liberals’ promised tax changes and what they mean to you- When these promised will take effect is currently uncertain:
Lower Taxes for Middle Class
The Liberals as stated that their first priority will be to cut the tax rate from 22 per cent to 20.5 per cent for the middle income tax bracket, which affects Canadians with taxable annual income between $44,701 and $89,401. There is some speculation that this could be done retroactively to the beginning of 2015, but more than likely, this rate change would be effective January 1, 2016. However, for this to take place Prime Minister Justin Trudeau would have to act pretty quickly, very similar to what Rachel Notley had done in Alberta.
High Income Earners Face Higher Taxes
The liberals will create a new tax bracket of 33 per cent for income earners above $200,000. This new tax brackets will pay for the middle-class tax cut. The current top federal bracket of 29 per cent affects individuals making taxable income over $138,586. For these high income earners, that means their total combined federal/provincial marginal tax rate will exceed 50 per cent in more than half the provinces.
The Liberals projected that this new tax bracket would bring in approximately $3.4 billion by 2016/17; an allowance of $600 million was taken into account of high earners using tax planning strategies to avoid higher taxes.” To help combat this, the Liberals said they will increase enforcement resources for the Canada Revenue Agency “to ensure tax liabilities are collected.”
The liberal government lead by Justin Trudeau is focus on cancelling income splitting for families, which is technically known as “The Family Tax Cut” and in so doing, saving the government $2 billion annually.
Income splitting is said to benefit only 15 per cent of Canadian households and provides no advantage to single parents or to couples whose incomes are similar. It also doesn’t help those who don’t have kids or who have kids who are over 18.
"A child is a person who is going to carry on what you have started ... the fate of humanity is in his hands".
While it’s possible that such a move could be cancelled retroactive to 2015, doing so could be a major blow to families who have relied on the up-to-$2,000 benefit, which was the maximum savings under the Family Tax Cut.
Replacing the Universal Child Care Benefit
Will families be better off? The Liberals promise to replace Harper’s Universal Child Care Benefit with the new “Canada Child Benefit,” ending the monthly, taxable cheques of $160/month for each child under six and $60/month for kids ages six through 17. Instead, the new benefit will be tax-free as well as income-tested.
Tax Free Saving Accounts
The Liberals have promised to roll back to $5,500 the TFSA annual dollar limit, which was increased to $10,000 earlier this year by Stephen Harper’s Tory government. While legally, the Liberals could decide to make such a change retroactive to 2015, it would create an administrative nightmare for both the Canada Revenue Agency and TFSA providers, not to mention TFSA holders who have already contributed $10,000 based on the current limit.
Education and textbook tax credits
The federal education amount is a non-refundable credit worth 15 per cent multiplied by $400 for each month of full-time post-secondary education or $120/month for each month of part-time schooling. The textbook amount is a similar credit, which is only available to you if you can claim the education amount and is also worth 15 per cent multiplied by $65/month of full-time post-secondary education or $20/month of part-time school.
The Liberals also plan to repeal the “modest” textbook credits, since they only provide a benefit at the end of the tax year and “are not targeted at students from low- and middle-income families.” Instead, they have vowed to increase upfront non-repayable grants “that put money directly into the pockets of students.” No changes are planned to the tuition tax credit.
Given that students may have already budgeted for these credits for the 2015-2016, this change may not happen until a budget is introduced, likely in early 2016.
Note: Each tax payor is unique, Please consult with your Financial Advisor or Accountant to see how these changes will affect your tax situation.
Sources: Financial Post/Personal Finance