This last summer during the federal election Justin Trudeau campaigned on a large number of promises to Canadians and they responded by granting him a majority government with a mandate to make good on his intentions to affect “Real Change”.
One area that got a lot of attention during the election campaign was Mr. Trudeau’s approach to taxation and social benefits. His campaign talked about a middle class tax break, the elimination of the Family Tax Cut, the addition of a new ‘top-tier’ tax bracket for those individuals earning in excess of $200,000 per year, clawing back the contribution room increases on Tax Free Savings Accounts, a review of professional corporations and the small business tax rate, and a revamping of social benefits paid to parents currently running as Child Tax Benefits and the Universal Child Care Benefit.
Campaign platforms from all parties are normally long on rhetoric and promises and short on details so shortly after the election was over I started to receive questions from clients about how and when these measures would be implemented. Obviously it was far too early tell anything for sure other than it was too late in the 2015 taxation year to do anything that would affect the plans that Canadians already had in place for 2015 and we would have to wait until Parliament sat again to find out more details.
On December 7th the Honourable Bill Morneau, Trudeau’s Minister for Finance, sat down with CBC and talked about how some of his plans were shaping up.
Canada Child Payments
Mr. Morneau indicated that the new payment system would replace the existing two systems (Child Tax Benefit and Universal Child Care Benefit), that the payments would be tax-free and that they would start effective July 1, 2016. Historically July 1st each year is when the government has implemented any changes to these programs introduced over the previous year.
Tax Free Savings Accounts
Minister Morneau also reinforced that the Liberal government would keep its promise to roll back annual increases to the TFSA contribution room announced by the Conservatives in 2014. When asked he clarified that the contribution room that has been granted up to this point will not be taken away, but starting in 2016 new room granted would be reduced back down to $5,500 in 2016 and indexed to inflation thereafter.
Tax Rate Adjustments
Mr. Morneau confirmed the government’s intention of reducing the so-called “Middle-class” tax rate of 22% to 20.5% and introducing a new top-tier income tax rate of 33% for those earning more than $20,000 for the 2016 tax year. He was forthright when acknowledging that these measures were no longer seen to be “revenue neutral” as they had been advertised throughout the election. In the aggregate they will cost $1.4 billion more than they will recover in 2016. This would seem to put the overall budget projections of a $10 Billion deficit for each of the current government’s first two years in jeopardy, though when asked Mr. Morneau would neither confirm nor deny this.
Not mentioned by Mr. Morneau during the interview is that this tax break benefits everyone who makes between $45,000 and $222,000 and not just the “middle-class”. A taxpayer making $195,000 will save approximately $680 (1.5% of their income between approximately $45,000 and $90,000) where a taxpayer who only makes $60,000 will save approximately $225. A couple each making $40,000, or around $20/hour, will see no savings at all, but presumably they will benefit more from the new Canada Child Credit.
With the introduction of the new 33% Federal Tax bracket we now have ten separate tax brackets in British Columbia (the province having its own full set of brackets that does not coincide with the federal set). The top British Columbia bracket is 16.8% which means that British Columbians in the new top bracket will be facing a marginal tax rate of 49.8%.
The Justin Trudeau Liberals seem to be very intent on living up to the promises they made to Canadians which is encouraging to hear, though how much this will ultimately cost still remains unclear. There are many promises left to address and I suspect we will see more of these small informational interviews as we near the spring and Mr. Morneau’s first budget address.