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Federal Legislative Proposals Pre-Budget 2016
Canadian Tax and
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Federal Legislative Proposals Prior to 2016
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.
Measures Included in the Notice of Ways and Means Motion Bill
- 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