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Personal Income Tax Measures

Personal Income Tax Measures

Top Marginal Income Tax Rate – Consequential Amendments

In 2015, consistent with its election platform, the government introduced a new top marginal tax rate of 33%, applicable to individual taxable income over $200,000, effective for 2016 and later taxation years. The legislation effecting the rate change, which has received second reading in the House of Commons, also included a number of consequential amendments to rules that either rely on the top personal income tax rate or use formulas that reflect that rate.

Budget 2016 proposes a number of further amendments to reflect the new top marginal income tax rate for individuals, including:

  • amending the definition of “relevant tax factor” in the foreign affiliate rules to reduce the relevant tax factor for individuals from the current 2.2 to 1.9;

  • amending the capital gains refund mechanism for mutual fund trusts to reflect the new 33% rate in the formulas that are used in computing refundable tax;

  • increasing the Part XII.2 tax rate on the distributed income of certain trusts from 36% to 40%;

  • increasing from 28% to 33% the tax rate on personal services business income earned by corporations;

  • providing a 33% charitable donation tax credit (on donations over $200) to trusts that are subject to the 33% rate on all of their taxable income;

  • applying the new 33% rate on excess employee profit sharing plan contributions; and

  • amending the recovery tax rule for qualified disability trusts to refer to the new 33% rate.

These amendments will generally apply to 2016 and later taxation years. The charitable donation tax credit measure will be limited to donations made after 2015, while the rate increase on personal services business income will be prorated for taxation years beginning in 2015 and ending in 2016.

Canada Child Benefit

Budget 2016 proposes to implement one of the Liberals’ key election promises by consolidating the Canada Child Tax Benefit and the Universal Child Care Benefit into a single, non-taxable benefit entitled the “Canada Child Benefit.” This new regime will provide a maximum annual benefit of $6,400 per child under the age of six and $5,400 per child aged six through 17. The maximum amount of the benefit would be increased by up to $2,730 per child where that child is eligible for the disability tax credit. The amount of the benefit is proposed to be reduced by prescribed percentages of household income above $30,000. The Canada Child Benefit would be paid in monthly instalments commencing in July.

Elimination of the Income Splitting Tax Credit

Budget 2016 proposes to eliminate the income splitting tax credit for couples with at least one child under the age of 18 for 2016 and subsequent taxation years. Pension income splitting is not affected.

Mineral Exploration Tax Credit for Flow-Through Share Investors

Budget 2016 extends the 15% mineral tax exploration credit for investors in flow-through shares for an additional year, until March 31, 2017.

Increase to Northern Residents Deduction

Budget 2016 proposes substantial increases to the northern residency deductions for residents in both the Northern Zone and the Intermediate Zone. The maximum for those in the Northern Zone is proposed to be increased from $8.25 to $11 per day where multiple household members claim the deduction, and from $16.50 to $22 per day where no other member of the household claims the residency deduction for the 2016 taxation year. The proposed maximums for those in the Intermediate Zone would be increased to $6.50 per day and $11 per day, respectively.

Tax Credits for Provincially Registered Labour-Sponsored Venture Capital Corporations (LSVCC) Tax Credits

Budget 2016 proposes to restore the federal LSVCC tax credit to 15% for share purchases of provincially registered LSVCCs prescribed under the ITA for 2016 and subsequent taxation years. Newly registered LSVCCs under existing provincial legislation would be eligible for prescription if the provincial legislation is currently prescribed for purposes of the federal LSVCC tax credit. New provincial regimes would be eligible for prescription under the ITA, provided that the enabling provincial legislation is patterned on currently prescribed provincial legislation. Note, however, that the prohibition on new federal LSVCC registrations and the current transition rules for federally registered LSVCCs would be maintained.

Creation of Teacher and Early Childhood Educator School Supply Tax Credit

Budget 2016 proposes to introduce a refundable tax credit for “eligible educators” to provide tax recognition of the costs that these educators incur. The amount of the credit would be 15% of the amount paid for “eligible supplies” of up to a maximum of $1,000.

Exclusion of Ontario Electricity Support Program Income

Budget 2016 proposes to exempt from income amounts received under the Ontario Electricity Support Program, so that the amounts received under these programs do not affect income-tested federal or provincial/territorial benefits.

Elimination of Education and Textbook Tax Credits

Budget 2016 proposes to eliminate the education and textbook tax credits, while leaving the tuition tax credit in place. Other income tax provisions that rely on eligibility for the education tax credit would be unaffected by the elimination of the credit effective January 1, 2017.

Phase Out of Children’s Fitness and Arts Tax Credits

Budget 2016 proposes to phase out the children’s fitness and arts tax credits by reducing the maximum amount of the fitness credit from $1,000 to $500, and reducing the maximum amount of the arts tax credit from $500 to $250. The supplemental amounts for children eligible for the disability tax credit will remain at $500 for 2016. Both credits would be completely eliminated for 2017 and subsequent taxation years.

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