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Federal Legislative Proposals Pre-Budget 2016

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Federal Budget -> Federal Legislative Proposals Prior to 2016 Budget

Federal Legislative Proposals Prior to 2016 Budget

Tax Rules for Certain Trusts and Their Beneficiaries

On January 15, 2016, the Department of Finance released draft legislative proposals for consultation.  These proposals would modify the income tax treatment of certain trusts and their beneficiaries.  For more information see the news release, as well as the legislative proposals and explanatory notes, and a backgrounder which provides brief explanations of changes related to trust loss restriction events, estate donations, and spousal and common-law partner (and similar) trusts.

Interested parties were invited to provide comments on the draft legislation by February 15, 2016.

Bill C-2, An Act to Amend the Income Tax Act

On December 7, 2015, the new Liberal government introduced new legislative proposals to enact some of the provisions from the Liberal platform.  These measures were subsequently tabled as Bill C-2, An Act to Amend the Income Tax Act, on December 9, 2015.  Bill C-2 received Royal Assent on December 16, 2016.

Measures Included in the Notice of Ways and Means Motion Bill C-2

 - reduce the middle income tax bracket rate from 22% to 20.5% effective January 1, 2016
 - create a new income tax bracket of 33% for taxable income over $200,000 per year effective January 1, 2016
 - cancel the Family Tax Cut
 - no change to pension splitting for seniors
 - tax brackets in s. 117(2) of the Income Tax Act (ITA) will be replaced with all 2016 tax brackets:  $45,282, $90,563, $140,388 and $200,000.  This is so that indexation in subsequent years will be applied to dollar amounts that are all from the same year.
 - amend the donation tax credit rate for donations over $200 so that the rate will be 33% to the extent that an individual has taxable income that is taxed at 33%.  In 2016, if the individual has taxable income of less than $200,000, the rate for donations over $200 will remain at 29%.  For instance, if an individual has taxable income of $220,000 in 2016 and makes a donation of $25,200, the tax credit will be calculated as 15% x $200 plus $20,000 x 33% plus $5,000 x 29%.  This applies only to donations made after 2015.  Donations made in 2015 and claimed in 2016 or a later year will not be eligible for the 33% tax rate.  This change is contrary to what has been done by provinces and territories that have introduced higher tax rates for high income earners.  They have either left the top donation tax credit rate at the old highest tax rate, or have increased it to the new highest tax rate for everyone.
 - amend s. 120.4(2) of the ITA re tax on split income, to change the 29% rate to 33%, also effective January 1, 2016
 - amend s. 122(1) of the ITA re tax payable by inter vivos trust, to require a trust (other than a graduated rate estate or qualified disability trust) to pay tax at a rate of 33%
 - amend s. 123.3 of the ITA re refundable tax on investment income of a Canadian-controlled private corporation (CCPC). The additional tax on investment income will be increased from 6 2/3% to 10 2/3%.  Accordingly, s. 129 of the ITA will be amended to increase the dividend refund rate from 33 1/3% to 38 2/3%, effective for taxation years that end after 2015, and prorated according to the number of days in the taxation year that are after 2015.  Related amendments will also be made to increase the percentage of investment income of a CCPC that can be included in the corporations refundable dividend tax on hand (RDTOH).  See the explanatory notes for more information on this.
 - amend s. 186(1) of the ITA to increase Part IV tax from 33 1/3% to 38 1/3% for assessable dividends received in a taxation year by private corporations or subject corporations from an unconnected dividend payer.  Again, this applies to taxation years that end after 2015.

TFSA, RRSP and RRIF

 - amend s. 207.01(1) of the ITA to return to the previous TFSA limit calculation, but leave the 2015 limit at $10,000.  For each year after 2015, the limit will be the amount determined by indexing $5,000 to inflation for each year after 2009 and rounding the result to the nearest $500.  This means that the 2016 TFSA limit will be $5,500.

More Changes to Come

The December 7th news release indicated that the 2016 budget would include proposals to create a new Canada Child Benefit, with payments under the new benefit to begin in July 2016.  It also indicated that legislative amendments would be introduced at an early opportunity to repeal the Family Tax Cut.

See the Minister of Finance mandate letter for a list of top priorities for the Minister of Finance.

 

Revised: September 19, 2017

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