The Liberal government released its first budget earlier this week. Here are a few of the details that we thought you might like to be aware of:
TFSA’s
TFSA contribution room is back down to $5,500 for 2016. If you haven’t opened or topped-up your account yet, please let us know. (Remember: the best way to definitively find out your current contribution room is to login to CRA’s “My Account” website.)
OAS
As expected, the start date for OAS will be moved back to 65 from age 67. Various additional income amounts are available for very low income families (i.e. GIS enhancements and additional support for seniors who live alone or when one spouse has to move into facility care and the other doesn’t.)
Child Care Benefit
The fitness tax credit, tuition tax credit, arts credit and income splitting will be eliminated. Universal Child Care Benefit and Canada Child Tax Benefit programs are cancelled and payments will cease in June. A new Canada Child Benefit has been introduced and will pay $6,400 per child under age 6 and $5,400 per child from 7 to 17 years old. The benefit will be income tested and reduced for higher income families. The benefit will be tax-free now.
Personal Tax Rates
Generally, top tax rates are going down for middle income earners and increasing for top earners. The top marginal rate on income is now 53% in Ontario.
Business Tax Rates
Rather than continuing to decline to 9.0% over the next few years, the small business tax rate will stay at 10.5%. Various measures to multiply the $500,000 small business deduction limit across owners/partners will be eliminated. This is especially welcome news to the many incorporated professionals we serve.
Investments
Labour-sponsored funds (LSVCC’s) are back! The 15% federal credit has been restored… but don’t get too excited. These investments have had a horrible track record in the past and we’ll be hesitant to recommend them unless the investments merits and thesis improve substantially.
The corporate capital class structure of some mutual funds that allowed tax-free switching between funds inside the corporate structure (thereby avoiding capital gains tax) has been eliminated – however, there is a 6-month grace period for implementation. This takes a significant advantage away from mutual funds and levels the playing field with ETF’s and stocks, something we’re quite happy with.
Linked-Notes will also be taxed according to the underlying investments and not has a bond if sold early.
For more information on the budget’s impact on investments, click here for HollisWealth’s perspective.
Thankfully, there are no changes to stock option taxation.
Insurance
Rather significant changes have been made to limit the benefit of moving a personally owned life insurance policy into a non-arms-length (i.e. likely your own) corporation.
Donations to Charities
It has been decided that the government will not proceed with a measure announced by the previous Conservative government in last year’s budget that would have allowed investors to donate the cash proceeds of the sale of private corporation shares or real estate without triggering capital gains tax, as long as the donation was made within 30 days of the disposition. The measure was to have started in 2017. Many charities are disappointed as they were expecting larger inflows of capital from this measure.
Bank “Bail-Ins”
The government is planning to introduce a bank recapitalization “bail-in” regime that would hold bank shareholders and creditors, — and not taxpayers — responsible for a bank’s risks should one of Canada’s big banks fail.
The proposed legislation would “allow authorities to convert eligible long-term debt (not bank accounts of depositors) of a failing systemically important bank into common shares to recapitalize the bank and allow it to remain open and operating,” the budget document states. “Such a measure is in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as ‘too big to fail’.”
Economics – Increased Spending & Deficits
Well, there is certainly a lot of spending about to begin. Deficits will be substantial. Notably, $120 billion in infrastructure over the next ten years will mean a lot of work for construction and related industries. The economists at Scotiabank have put together some great summaries here: