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Tax changes to make note of this year

IncomeThe CRA has a comprehensive website of tips and changes, but we’ve put together a list of the major ones. If you have any questions, or would like to know more information on other tax changes, don’t hesitate to send an email or call 416-777-6368.

Personal finance

Arguably one of the most talked about changes is to the personal income tax rates. Effective January 1, those earning between $45,283 and $90,563 had their federal rates reduced to 20.5% from 22%. On the higher end of the spectrum, those earning over $200,000 saw their rates increase to 33% from 29%, federally.

These figures are further adjusted depending on which province you live in. For those living in Ontario earning over $200,000 (up to $220,000), the provincial rate brings this number up to 51.97%, up from 49.53%. Over $220,000-earners are taxed at a rate of 53.53%, when the federal rate is combined with Ontario’s.

If you are in the higher tax bracket, you could save some percentage points by delaying taking your RRSP deduction to next year, if you know you’ll be making over $200,000 in 2016. The same can apply for delaying discretionary deductions and credits such as certain medical expenses.

2015 marks the only year when the tax-free savings account contribution limit was at $10,000, as the Liberals have reduced this back to $5,500 for 2016. However, if you didn’t use this extra room last year, you can still use it in later years.

Families

Some families can still benefit from the family tax credit (income-splitting) in their returns this year, before it’s eliminated next year. This credit allows parents with children under 18 years old to split their income and lighten their tax burden.

The higher earning partner can transfer up to $50,000 to the lower earning partner, and save up to $2,000 in taxes. The bigger the discrepancy between salaries, the better this works. You can also transfer unused tuition, education, and textbook amounts from a partner.

Similar to the family tax credit, the enhanced universal child care benefit is also on its way out, but families still have to account for it during this year’s returns. Families will receive $160 per month per child under six, and $60 per month per child aged six to 17.

The amount parents can claim for childcare expenses increased to $8,000 per child under seven; to $5,000 per child seven to sixteen years; and to $11,000 per child with a disability.

A claim can be made for the family caregiver amount for a person under 18 who is dependent on you because of a disability.

Lastly, the amount paid for children’s fitness or arts programs is now refundable; meaning the amount of tax you pay can be less than zero. However, these tax credits are being phased out by 50% in 2016, and then eliminated in 2017.

Other changes

Under the Canada Apprentice Loan, students in a designated red seal program can now claim interest on their government student loans.

Also, the minimum amount that must be withdrawn from an RRIF or an RPP has been reduced.

Other changes to be aware of include mineral exploration tax credit, overseas employment tax credit, and foreign income verification statements.

Tax planning should be a year-round activity, not something you do once in April. Take a look at the federal budget announced on March 22, as it can help you plan ahead for 2016 filing. As of this point, the Liberals have decided to keep the capital gains inclusion rate at 50%—it had been previously speculated that this rate might increase.

My next posts will look at what you can write off and how you can automate the process as much as possible. Happy filing!