After The Election: How to Plan For Tax Changes

The new Liberal government outlined several significant tax changes in their election platform. If they make good on those election promises in tax year 2016 and beyond, millions of Canadians will be affected financially; some will be winners and some will be losers.

Especially if you’re a professional in the tax or financial services, who wants to embellish on your value proposition with meaningful year end communications on these issues, now is the time to come up to speed.

The next Federal Budget will shed some light on when exactly the anticipated tax changes will take effect. Most likely they will not kick in before July 1, 2016, although some provisions could be implemented retroactively to January 1, 2016.

Knowledge Bureau has deciphered some of the key tax provisions outlined in the campaign and put numbers to them, to help you understand potential outcomes for your family, or for your clients if you’re an advisor. This makes for some interesting tax planning opportunities in 2015, in anticipation of potential windfalls for some, future tax exposure for others and, most important, direction for investors.

Here is what’s currently in place for the 2015 tax filing year, and how it may change under the new Liberal government:

The Family Tax Cut. Introduced in the last tax filing season, this tax provision targeted relief for two-parent families with children under 18 living at home at the end of the tax year. It works best if the two parents are in different tax brackets. A hybrid of income splitting and income averaging, the provision requires that federal taxes payable are calculated twice, after re-allocating income up to $50,000 from the higher earning spouse to the lower spouse. The maximum tax saving per household is capped at $2,000. The credit may be claimed by either spouse, and in the case of older parents, either the family tax cut or pension income splitting can be applied, but not both. This provision won’t help families that don’t pay taxes, or single parents, however (but four other tax measures were introduced to help families in those situations).
Liberal Tax Change: The Family Tax Cut would be eliminated.

The Universal Child Care Benefit (UCCB). This amount, which is not income tested, was increased in 2015 to $160 a month for children under the age of 6 and expanded to provide $60 a month for those who are 6 to 17 years of age. This amount is currently paid to all families, regardless of income level, helping both single-parent families and two-parent families. The amount is taxable to the lower earning spouse in the family.
Liberal Tax Change: The UCCB would be eliminated.

Increase in the Child Care Expense Deduction. The maximum dollar limits will expand by $1000 in each category in the 2015 tax filing year.
Liberal Tax Change: No change is expected here.

Doubling of the Children’s Fitness Tax Credit. This occurred in the 2014 tax filing year when the maximum rose to $1000; this credit will be refundable starting in 2015. 
Liberal Tax Change: No change is expected here.

Removal of the non-refundable tax credit for children under the age of 18. This change will occur on the 2015 tax return.
Liberal Tax Change: No change is expected here.

Additional Liberal Tax Changes: The new government is expected to increase the refundable and income-tested Canada Child Benefit, decrease the middle tax rate from 22% to 20.5% and add a new high tax rate of 33% on taxable personal income over $200,000. In addition, the TFSA contribution limits, raised in 2015 to $10,000, may be moved back to the 2014 level of $5500.

Next Time: Winners and Losers: We Calculate the Differences.