2016 Federal Budget Overview

Investors Breathe A Small Sigh Of Relief, but Losers Include Mutual Fund Holders, Small Businesses, Charities and Certain Families. 

Highlights in this Special Budget Report include submissions by Walter Harder, DFA-Tax Service Specialist™ and Evelyn Jacks, MFA™.

Please click here to watch Evelyn Jacks post-budget commentary on Maclean's.

BUDGET BY THE NUMBERS – 2015-16 to 2020-21

• Income tax revenues are projected to increase by $6.9 billion or 5.1% to $142.7 Billion in 2015-2016
• By 2020-2021 that number will be $177 billion, indicating  a slower  average annual growth rate  of 4.4%
• Corporate tax revenues are expected to decline in 2017 rebounding to their 2014 level by the end of 2018.  Oil prices have been the main culprit, and with loss carry back provisions available corporate tax revenues will grow in the period by only 2.8%.
• GST revenues will post a higher growth rate of 5.6% in 2015-16 but slow to 3.8% in the remainder of the period

The good news is that the much rumored increase to the capital gains inclusions rate did not come to fruition in this budget, and the anticipated changes to stock option benefits have been deferred for now.  But  If you’ve invested in corporate class mutual funds, you ‘ll want to do any switching between funds on a tax free basis now until September as that special tax free treatment will disappear.

Charities will also wince at the cancellation of a provision expected to begin in 2017, introduced in the last Budget.  That is, the donation of sales tax proceeds from a qualifying private corporate or real estate dispositions will no longer qualify for a capital gains exemption if proceeds are donated to charity.

Families will be happy with the introduction of a more generous Canada Child Benefit, which is a refundable credit based on family net income.  Specifically, the new Canada Child Benefit provides a maximum benefit of $6400 per child under age of 6 and $5400 per child age 6 to 17.  The clawback zones are what we need to watch:

This provision is based on 2015 family net income, which is determined on the tax return (2015) currently being filed.  Therefore, RRSP planning for families is extremely important as clawback zones can bring marginal tax rates over 50% for taxpayers with income under $65,000.

The Knowledge Bureau's Canada Child Benefit Worksheet calculator has been updated to match the provisions in the budget. Click here to use the calculator.

Foreign born individuals who are Indians and not Canadian citizens and permanent residents under the Immigration and Refugee Protection Act may legally reside in Canada and receive the CCB.   A new limitation is being introduced with regard to eligibility for retroactive payments.  Currently individuals may apply for CCTB and UCCB as far back as to introduction of programs; income-tax based credits however, are limited to a 10-year limitation.   Retroactive application of UCCB and CTB will align after 2016, to the 10-year limitation.

Unfortunately, there is no non-refundable tax credit for minor children for those who do not qualify for the income-tested benefits. This was removed when the previous government introduced the Universal Child Care Benefit enhancements and the Family Tax Cut.

Other non-refundable tax credits will be removed as well:  the education/textbook amounts will disappear, as will the refundable children’s fitness credit.

Refer a Friend	Research	Calculators	Course Trials