BUDGET - "GROWING THE MIDDLE CLASS"
The government announced a new federal Budget on March 22, 2016
Numerous business and personal tax measures have been proposed
A few of the interesting changes are briefly summarized below
Canada Child Benefit
Budget 2016 proposes to introduce the new Canada Child
Benefit (CCB) which will replace the existing Canada child tax benefit (CCTB)
and universal child care benefit (UCCB). The CCB will be a monthly non-taxable
benefit that is based on adjusted family net income and the number of children
in the family. The maximum benefit is $6,400 per child under the age of 6 and
$5,400 per child aged 6 to 17. The benefit is gradually phased out as adjusted
family income exceeds $30,000. The phase-out rate is based upon the number of
children and how high the family income is. See the table of phase-out rates
Phase-Out Rates (%)
Adjusted Family Net Income
$30,000 - $65,000
4 or more children
Repealing the Family Tax Cut
The "income splitting" tax credit allowed spouses with at
least one child under the age of 18 to split up to $50,000 of their income on a
notional basis. As a result, the couple's tax burden could be reduced by up to
$2,000 per year. The 2016 Budget proposes to repeal this tax credit effective
for 2016 and subsequent years.
Tax Changes for Students
The Budget proposes to increase Canada Student Grant amounts
by 50%. This translates to an additional $1,000 in grants per year for students
from low-income families and $400 per year for students from middle-income
families. These increases will be applicable to the 2016-2017 academic year.
Further, the Budget proposes to eliminate the education and
textbook tax credits (tuition tax credit is unaffected) which respectively
provided a non-refundable tax credit of $400 and $65 per month of full-time
enrollment. This measure applies effective January 1, 2017.
Children's Fitness and Arts Tax Credits
The children's fitness tax credit provides a refundable tax
credit of up to $1,000 of eligible fitness expenses for children under 16 years
of age at the beginning of the year. The children's arts tax credit is a
non-refundable credit of up to $500 in eligible fees for children of the same
age. The Budget proposes to cut these maximum amounts in half for 2016 and
eliminate these two tax credits effective 2017 and subsequent years.
Taxation of "Switch Fund Shares"
Also referred to as "corporate class" funds, mutual fund
corporations that are organized as switch funds allow investors to switch
between various funds within the single corporate structure without immediate
tax implications. Though investors change their economic exposure when switching,
they are not deemed to have disposed of their shares for tax purposes and thus
do not realize capital gains when switching. Budget 2016 proposes to treat
these switches as a deemed disposition at fair market value with some
Eligible Capital Property
The 2014 federal Budget announced a consultation on
converting the eligible capital property (ECP) regime into a new class of
depreciable property. The ECP regime provides specific tax treatment for
capital expenditures and receipts on certain intangible items such as goodwill,
client lists, and franchise rights. The 2016 Budget follows through on this
initiative by proposing to create a new capital cost allowance (CCA) class
under which future expenses and receipts will be included. The transitional
rules are complex, but the changes will come into effect as of January 1, 2017.
Small Business Tax Rate
Budget 2016 preserves the reduction of the
overall tax rate on small business income to 10.5% (i.e. a 17.5% reduction from
the overall rate). The previously legislated reductions of 0.5% per year for
2017, 2018, and 2019 have been eliminated.
As such, the previously-legislated changes
to the dividend tax credit rate and the gross-up factors for non-eligible
dividends have also been eliminated for years after 2016. For 2016 and later
years, the gross-up on non-eligible dividends received from a corporation
resident in Canada will remain at 17%, and the phased-in reduction to 15% has
Multiplication of the Small Business Deduction
The Budget proposes new measures aimed at
eliminating the use of certain structures to "multiply" the availability of the
$500,000 small business deduction ("SBD") in certain situations that the
government considers inappropriate.
Several amendments to the Act have been
proposed in order to eliminate the so-called "multiplication" of the SBD using
partnership structures and associated corporations with investment income.