Federal Budget -> 2016 Budget
See the following on the 2016 Federal Budget, Department of Finance and Parliament websites:
Not all budget measures are included below. See the Federal Budget website for complete information.
See also the pre-budget proposals which included the revisions to the tax brackets and tax rates.
Budget 2016 proposes to create a new Canada Child Benefit (CCB) providing monthly tax-free benefits that are tied to income, to replace the Universal Child Care Benefit (UCCB), Canada Child Tax Benefit (CCTB) and National Child Benefit Supplement (NCBS). The Canada Child Benefit payments will start in July 2016.
The new CCB will provide a maximum benefit of $6,400 per child under 6 and $5,400 per child aged 6 through 17. The benefit will be reduced when adjusted family net income is over $30,000. There will be different % rates of reduction depending on the number of children, and when adjusted family net income exceeds $65,000 the % rates of reduction change. Entitlement to the CCB for the July 2016 to June 2017 benefit year will be based on adjusted family net income for the 2015 taxation year. See Canada Child Benefit on the Budget 2016 website for more details. Budget 2016 proposes to continue to provide an additional amount of up to $2,730 per child eligible for the disability tax credit. The reduction of this additional amount based on income will be made in the same manner as the reduction to the CCB. The additional amount will be included in the CCB payments made to eligible families.
For a family with 2 children under 6 and adjusted family net income of up to $30,000, the CCB would be $12,800 per year. For adjusted family net income of $65,000, the CCB would be reduced from $12,800 (2 x $6,400) to $8,075. The benefit is reduced to zero at adjusted family net income of approximately $107,050.
Budget 2016 also proposes to allow a taxpayer to request retroactive payments of the CCB, CCTB or UCCB, with a 10 year time limit, as in the Taxpayer Relief Provisions, but in a slightly different manner. A retroactive payment request ill be able to be made in respect of a month on or before the day that is 10 years after the beginning of that month, effective for requests made after June 2016.
See the CCB Calculator on the budget website to find out how much you will receive. Don't use the one from the Liberal platform, as the results are not based on the currently budgeted factors.
Personal Income Tax Measures
Budget 2016 proposes to eliminate the Family Tax Cut for 2016 and later years. Legislative proposals announced on December 7, 2015 included elimination of the Family Tax Cut for 2016 and later years. This has already been incorporated into the Canadian Income Tax and RRSP Savings Calculator.
The Northern Residents Deduction, which reduces taxable income, is available to individuals living in prescribed areas in northern Canada for at least 6 consecutive months beginning or ending in a taxation year. Budget 2016 proposes to increase the maximum deduction that each member of a household may claim from $8.25 to $11 per day, and where no other member of the household claims the deduction, to increase the maximum deduction from $16.50 to $22 per day for the 2016 taxation year. Residents of the Intermediate Zone will be entitled to deduct half of these increased amounts. For more information on this deduction, see the Canada Revenue Agency (CRA) information for Northern Residents.
The 2016 Budget proposes to reduce the children's fitness credit maximum eligible amount to $500 from $1,000, and to eliminate the credit for the 2017 taxation year. The additional tax credit for a child with a disability will remain at $500 for the 2016 taxation year.
The 2016 Budget proposes to reduce the children's arts credit maximum eligible amount to $250 from $500, and to eliminate the credit for the 2017 taxation year. The additional tax credit for a child with a disability will remain at $500 for the 2016 taxation year.
Top Marginal Tax Rate - Consequential Amendments
See Top Marginal Income Tax Rate - Consequential Amendments for information on these consequential amendments. For Personal Services Businesses, also see the information below in Business Income Tax Measures.
Canadian mutual funds can be in the legal form of a trust or a corporation. When they are in the form of a corporation, sometimes investors are able to exchange shares of one class of the mutual fund corporation for another class, with no taxable transaction created by the switch. This does not happen for mutual funds in the form of a trust. The budget proposes to amend the Income Tax Act so that an exchange of shares of a mutual fund corporation or investment corporation that results in the investor switching between funds will be considered a disposition at fair market value for tax purposes. Although originally planned to come into effect on October 1, 2016, this will apply to dispositions that occur on or after January 1, 2017.
See Taxation of Switch Fund Shares on the Budget 2016 website.
The Federal 2015 Budget announced a proposal to provide an exemption from capital gains tax for certain dispositions of private corporation shares and real estate which occur after 2016. This measure was not included in Bill C-59, which received Royal Assent on June 23, 2015. The 2016 Federal Budget announced that this proposal will not happen.
Other personal tax measures, some of which were included in the Liberal Platform:
- education and textbook tax
credits will be cancelled effective January 1, 2017
The budget proposes to increase the Guaranteed Income Supplement (GIS) top-up benefit for single seniors by up to $947 annually starting in July 2016, more than doubling the current maximum GIS top-up benefit. Single seniors with annual income (other than OAS and GIS supplement benefits) of about $4,600 or less will receive the full increase of $947. The increased benefit will be reduced above the threshold of $4,600 and will be complete phased out at an income level of about $8,400.
The Budget announced that consultation will be started with Canadians regarding enhancement of the CPP retirement pension, with a view to making a decision before the end of 2016 about how it should be enhanced. Consultations with Canadians will be started in the coming months.
The Budget proposes to cancel the provisions in the Old Age Security Act that increase the age of eligibility for OAS and GIS benefits from 65 to 67 and Allowance benefits from 60 to 62 over the 2023 to 2029 period.
Increased Support for Senior Couples Living Apart
Budget 2016 proposes higher benefits based on individual incomes for couples who receive GIS and Allowance benefits, and must live apart for reasons beyond their control.
The Budget also announced that the Government is looking at how a new Seniors Price Index that reflects the cost of living faced by seniors could be developed to be used as the index for increasing the OAS and GIS.
For more information on the above proposals for seniors, see Improving the Quality of Life for Seniors in the 2016 Budget.
The Budget proposes to:
- increase the Disability Award, with the maximum
increased to $360,000 in 2017, indexing it to inflation. Higher Awards to
be paid retroactively to all veterans who have received an Award since the
introduction of the New Veterans Charter in 2006.
For more information on these measures, as well as information on consultations planned by the Government re veterans' financial support programs, see Supporting Canada's Veterans in the 2016 Budget.
Business Income Tax Measures
The Budget proposes to increase the corporate tax rate from 28% to 33% for personal services businesses, effective for the 2016 and later taxation year. Where the corporate taxation year straddles 2015 and 2016, the rate increase will be prorated according to the number of days that are after 2015.
The Federal 2015 Budget revised the Small Business Tax Rate and the non-eligible dividend tax credit starting in 2016, and the Federal Liberal Platform included keeping these revised tax rates. However, the Federal 2016 Budget proposes to keep the small business tax rate at 10.5% after 2016, to keep the non-eligible dividend gross-up factor at 17%, and and to leave the non-eligible dividend tax credit at 21/29 of the gross-up amount, so that the effective rate of the dividend tax credit remains at 10.5% of the taxable dividend. See Small Business Taxation on the 2016 Budget website.
The Federal 2016 Budget proposes to make changes regarding partnerships and corporate structures which have the effect of multiplying the amount of the small business deduction. See Multiplication of the Small Business Deduction on the 2016 Budget website.
Avoidance of the Business Limit and the Taxable Capital Limit
This proposal relates to a special rule in s. 256(2) of the Income tax Act, under which 2 corporations that would not otherwise be associated will be treated as associated if each of the corporations is associated with the same 3rd corporation. Budget 2016 proposes to amend the Income Tax Act to ensure that investment income derived from an associated corporation's active business will be ineligible for the small business deduction and be taxed at the general corporate income tax rate where the exception to the deemed associated corporation rule applies. See Avoidance of the Business Limit and the Taxable Capital Limit on the Budget 2016 website, under the Small Business Taxation heading.
Consultation on Active versus Investment Business re the Small Business Deduction
Active business income, which is eligible for the small business deduction, does not include income from a "specified investment business". A specified investment business usually has the purpose of earning income from property. However, a specified investment business does not include a business with more than 5 full-time employees, which results in the small business deduction being available even though the principal purpose is to derive income from property.
The Government consultation on this is complete. The Government is not proposing any modification to these rules at this time.
Budget 2016 proposes to repeal the current tax treatment of eligible capital property, and replace it with a new capital cost allowance (CCA) class available to businesses and provide rules to transfer taxpayers' existing cumulative eligible capital (CEC) pools to the new CCA class. This proposal is not intended to affect the application of the Goods and Services Tax/Harmonized Sales Tax (GST/HST) in this area.
Expanding Tax Support for Clean Energy
See Expanding Tax Support for Clean Energy on the Budget 2016 website.
Further Business Measures
The above is not a complete list - for more information see Business Income Tax Measures on the Budget 2016 website.
The links below are all to the Federal 2016 Budget website.
- from the Budget 2016 website
The above measures are not a complete list of all measures proposed by the 2016 Budget. Please see the 2016 Federal Budget website for complete information.
Moody's Gartner Tax Law LLP provides an interesting Budget Summary and Commentary if you'd like to read more about the budget.
Revised: December 17, 2016
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