Need to know on Personal tax for 2015 and 2016

“…but in this world nothing can be said to be certain, except death and taxes.”
Ben Franklin

2015 Personal Tax return

You are not necessarily need to be an expertise on taxation but knowing key areas will be always beneficial to have educated discussion with your tax consultant. Following are the key updates that happened in 2015 in personal taxation regulation:

Registered Retirement Income Fund (RRIF). RRIF is designed to save for your retirement for people from 71 to 94 years old. If you are considering using this popular tax-deferred tool, the following changes are taking into effect in 2015. You can save more of your RRIF savings to older ages if you withdrew more than reduced amount for 2015 and want to enjoy reduced withdrawal percent, by contributing the excess by the end of February 2016.

Lifetime Capital Gains Exemption that arises when you realize capital gains on the disposition of qualified small business corporate shares, farm and fishing properties. The limit for 2015 was indexed and increased from $800,000 to $813,600.

Child Care Expense Deduction is a tax relief to families by deducting eligible expenses for a child under 16. Those expenses may include daycare fees, nannies, school boarding. For 2015 and later years, tax amount increased by $1,000 and equals to $8,000 for children under 7, $5,000 for children between 7 and 16 and to $11,000 for children who are eligible for the Disability Tax Credit.

Universal Child Care Benefit (UCCB). UCCB increased to $160 per month for each child under 6. For children from 6 to 17 the UCCB was expanded of up to $60 per month for each child. The benefit is taxable and Canada Revenue Agency (CRA) will send form RC62 by the end of February to include income in 2015 tax return. If you have a spouse or common-law partner, the total UCCB payments you received for your child or children should be reported by the lower – income earner.

Children’s Fitness Tax Credit (CFTC) was converted to 15% refundable tax credit to use in 2015 tax return. Maximum amount for CFTC is $1,000 and it can be applied to fitness expenses for each child under 16 for programs with significant physical activity such as hockey, soccer, golf lessons, horseback riding, sailing, bowling, as well as others with similar level of physical activity. Additional $500 is applied for children with disabilities.

Foreign income Verification Statement. If you are a Canadian resident, owing a foreign property with total cost of $100,000 and more, you must file to CRA a form T1135. This form was introduced three years earlier, but in 2015 had a new, revised version. If your property cost between $100,000 and $250,000, the new simplified reporting method is applied. For the property costing more than $250,000, older detailed version is required.

In simplified version only 4 types of information are required: a) Type of property; b) The country code (for top 3 grossing by amount countries), where property is owned; c) Total income from all properties abroad; d) Total gain/loss from the sale of property.

Summary on 2015 Rates and Credits

Federal Tax Credits for Individuals

Married Persons – 15% of $11,327 (will increase to $11,474 in 2016 tax return)

Spousal – 15% of $11,327, less of the spouse’s Net Income For Tax Purposes. Base amount increased by $2,093 (to $13,420) if the spouse qualifies for the Family Caregiver Amount. Not available when the spouse’s income more than $11,327 (or $13,430)

Eligible Dependant – This credit is the same as the one that available for a spouse. Base amount also increased by $2,093 (to $13,420) if the eligible dependant qualifies for the Family Caregiver Amount.

Single Persons – 15% of $11,327

Caregiver – 15% of $4,608, less 15% of the dependant’s Net Income in excess of %15,375. Base amount increased by $2,093.

Medical expenses. The medical expense tax credit is determined by the following formula:

[15%] [(B-C) + D], where

B – is the total of an individual’s medical expenses for himself, his spouse or common-law partner, and any of his children who have not reached 18 years of age at the end of the year.

C – is the lesser of 3% of the individual’s Net Income For Tax Purposes and $2,208 (for 2015)

D – is the total of all amounts each of which is, in respect of a dependant of the individual (other than a child of the individual who has not attained the age of 18 years before the end of the taxation year), an amount determined by the formula: E – F, where E – is the total of the dependant’s medical expenses, F – is the lesser of 3% of the dependant’s Net Income For Tax Purposes and $2,208 (for 2015).

 

Automobile Deduction Limits

  • Capital Cost Allowance is limited to the first $30,000 of the automobiles cost, plus applicable GST/HST/PST (not including amounts that will be refunded through input tax credits).
  • Interest on financing of automobiles is limited to $10 per day.
  • Deductible leasing costs are limited to $800 per month.
  • Operating Cost Benefit = $0.27 per kilometer.
  • Deductible Rates = $0.55 for first 5,000 kilometers, $0.49 for additional kilometers.

RRSP Deduction Room For 2015, the addition to RRSP deduction room is equal to:

  • The lesser of $24,930 and 18% of 2014 Earned Income
  • Reduced by the 2014 Pension Adjustment and any 2015 Past Service Pension Adjustment

2016 updates

“The hardest thing in the world to understand is the income tax.” Albert Einstein

Starting from January 1, 2016 new tax rates will come into effect. Major change will be for Canadians with taxable income over $200,000 with increase in the top federal marginal income tax rate from 29% to 33% percent, which means that combined with provincial income tax will be more than 50% for most of tax payers.  This means that if you are expecting that your taxable income in 2016 and later years will be $200,000 or more, consider to deferring some of your expense deduction for those later years:

  • One of these deferrals could be contribution to RRSP. If you contributed to your RRSP or your spousal account in 2015 and the first 2 months in 2016, you are not required to count this for 2015-year tax deduction, and defer it for your future year, if you are expecting that return will be higher; and
  • Another deduction that need to be considered is capital cost allowance (CCA). This option is good for self-employed, who bought some assets and they are reducing your tax by depreciation. CCA is a discretionary deduction and could be used in the future years. CCA might reduce your taxes if you are earning income by renting property, or from employment, etc.

Fortunately, for taxpayers, who have taxable income between $45,282 and $90,563 would be a slight decrease in marginal tax rate. The resident of Alberta (PFC’s focus province) will have combined personal tax rate lower by 4.69 % from 32 % in 2015 to 30.5 % in 2016.  The summary of tax brackets for Alberta resident will look like as follows:

 

Taxable income Marginal Tax Rate (%) Change
2014 2015 2016 2015-16
Up to $44,701 25% 25% 25% None
$44,702-$89,401 32% 32% 30.5% -4.69%
$89,402-$125,000 36% 36% 36% None
$125,001-$138,586 36% 36.5% 38% +4.11%
$138,587-$150,000 39% 39.5% 41% +3.80%
$150,001-$200,000 39% 37.75% 42% +5.66%
$200,001 – $300,000 39% 40% 47% +17.5%
$300,000 + 39% 40.25% 48% +19.25%

 

As shown in above information, Albertans (our main audience) should maintain their income at lower bracket than $125,000. Anything more than this threshold will be penalized by new provincial provincially and federally (more than $200,000) rules.

 

The summary of changes of Federal Personal Income taxes in 2016 comparing to 2015 is as follows:

More changes might be coming in 2016

“A fine is a tax for doing something wrong. A tax is a fine for doing something right.”

New Liberal government is preparing more changes, that might take into effect in 2016. The changes are in Bill C-2 and will make changes in Income Tax Act. The major changes will affect high earners as well as private corporations.

  • Stock options employees with annual earnings of more than $100,000 would be affected.
  • CCPC – will be closer look if those corporations are not used to reduce personal income tax.
  • Changes for families:
    • Income splitting for families will be cancelled, beginning 2016, resulting in increasing of tax bill for families with children under 18
    • Universal Child Care Benefit (UCCB), Canada Child Tax Benefit (CCTB) and National Child Benefit (NCB) would be replaced by Canada Child Benefit, starting July 1, and will be tax free and will be declining as parent’s income goes up.
  • People with income greater than $200,000 will experience reduction in tax benefit.
  • For students – tax credits for education ($720) and textbooks ($117) will be cancelled
  • For Seniors – Old Age Security and Guaranteed Income Supplement will be eligible at age of 65
  • For Teachers and early childhood educators – new refundable tax credit for buying school supplies
  • RRSP – will be more flexible and accommodate needs of individuals who relocating to a new place, had a marital breakdown, death of spouse, or living with older family member.
  • EI premiums will decline from $1.88 to $1.65 per $100 of insurable earnings.
  • CPP payments would be increased by 1.2% for those already receiving benefits.
  • GST on capital investments would be removed