The Trudeau government finally introduced its first budget this week, and it was arguably the most awaited budget in over a decade. The Liberals had made many promises during their campaign, but during recent weeks they hinted that some would be delayed, some would be modified, and the deficit, originally promised at $10 Billion, had skyrocketed to almost $30 Billion.
There are many infrastructure programs that are initiated or accelerated with this budget, notably dedicated funding to increase the quality of health care, education and infrastructure on First Nations’ Reserves, improvements to mass transit in places like Toronto and Montreal and investment in “Green” technologies across the country. While these are important components of Budget 2016, this examination deals primarily with tax issues that are likely to interest regular readers of this blog.
On a smaller scale, Canadians have been waiting anxiously to learn about the current government’s revamp of the Child Tax Benefit and Universal Child Care Benefit. The campaign promise was to scrap the existing program entirely, make the payments non-taxable and stop “giving money to millionaires”. The newly-unveiled Canada Child Benefit (CCB) allows for annual payments of up to $6,400 per year per child, for children under the age of six, and payments of up to $5,400 per year per child, for children ages six through eighteen. As promised these payments will not be taxed and when the family’s combined income exceeds $30,000 the payments will be gradually clawed back so that at a combined income of $190,000 the benefit is entirely eliminated. Interestingly the clawback is accelerated the more children a family has. For instance a family with one child and a combined income of $50,000 will lose 7% of their benefit, while a family with a similar income and four children will lose 23% of their benefit.
These changes will come into effect with the July 2016 payment and will be based on the family’s 2015 combined income.
The Family Tax Cut, or income splitting for families, was eliminated as promised. This does not affect a family’s ability to claim this credit for 2015, nor does it affect the ability of seniors to split pensions between spouses going forward.
A bad-news surprise was the reduction in Children’s Fitness and Arts credits by 50% each from $1,000 to $500 and $500 to $250 respectively. This measure affects the 2016 tax year.
Education received mixed treatment under this budget on a local level.
The good news is that teachers are now able to claim tax credits for supplies they purchase personally. This recognizes the long standing situation where teachers are investing in our children out of their own pockets.
The bad news is that as of January 1, 2017 university students will no longer get Education and Textbook credits. These credits were given in addition to tuition credits to recognize that a significant portion of a post-secondary education is made up of non-tuition expenses. Tax credits will still be given for tuition and any unused Education and Textbook credits that are being carried forward will not expire.
The Small Business Tax rate had previously been reduced from 11% to 10.5% and there was a range of speculation on this from a reduction to 9.5% to an increase to 12%. In the end the small business rate remained the same.
The small business rate is available to qualifying small business corporations in Canada on profits of less than $500,000 and there are some specific rules designed to ensure that no one person or group is accessing more than their fair share. These rules were adjusted to close some perceived loopholes, but most taxpayers should not see any changes.
The treatment of goodwill for tax purposes has changed slightly but the changes are more to simplify things and make the treatment more consistent with other capital asset purchases for business than to change the tax policy. These changes will take effect January 1, 2017.
From a tax perspective there wasn’t much in the way of good news in this budget, but then not much was expected. The uncertainty is over and now we can start planning for the next few years. If you have questions on how the budget changes will affect you and your family please give us a call.