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Tax Changes 2015 - 2016
The Income Tax Act is one of the most changing legal guidebooks on record. A new government, bringing new priorities and approaches inevitably brings new tax changes. In this case our previous government also brought about changes in the election year that will affect 2015, some of which the new government will reverse in 2016.
Family Tax Cut
The family tax cut was introduced by the Conservative government last year as an attempt at income splitting for spouses with families. This federal credit will automatically calculate with your 2015 return if you qualify for it.
The credit is calculated based on the net reduction to your and your spouse's or common-law partner's combined federal taxes, as if an amount up to a maximum of $50,000 in taxable income was transferred from the individual with the higher taxable income to his or her spouse or common-law partner. The maximum federal tax saving is $2,000.
Tax Rate Changes
For the 2016 and subsequent tax years, the federal personal income tax rate on taxable income of $45,282 to $90,563 (the second income tax bracket) will be reduced by 1.5% from 22% to 20.5%.
A planning point if your taxable income falls within this bracket is to maximize your RRSP deductible contributions in 2015 as it will save you 1.5% more tax than it will in 2016 and beyond.
A rate change that will not affect the majority of Canadians is that taxable income over $200,000 will be subject to a federal income tax rate of 33%.
Labor Sponsored Tax Credit
The previous government announced that the federal Labor Sponsored Tax Credit that was previously at 15% of investments up to $5,000 is to change to 10% in 2015 and 5% in 2016 then be phased out in 2017.
Part of the Liberal party platform was to reinstate this credit to its pre 2015 level, but so far that adjustment has not been introduced.
Tax Free Savings Account
The new government is cutting back the annual allowable contribution to Tax Free Saving Accounts from the recently instated $10,000 per year level back to the previous $5,500 level. If you did not take advantage of the 2015 $10,000 contribution level it will not be lost, but will be included in the carry forward balance for future contribution. An RRSP contribution up to your contribution limit will be a deduction from income for 2015 if it was made in the last 10 months of 2015 or the first 2 months of 2016, but will be taxable the year it is withdrawn from the plan.