2016 Federal Budget
Federal Budget –What’s in it for me?
On March 22, the Liberal government delivered their first budget. The federal government did follow through on its promise to spend on infrastructure. They committed billions to infrastructure over the next few years, focusing on green and social infrastructure. In addition there were numerous policy and tax changes that will impact Canadians. A discussion of all of the changes would be very lengthy. Instead we will do a quick overview of a few the key items, to help folks answer the question, “What’s in it for me?”
- The Federal government will work with the provinces and territories to enhance the Canada Pension Plan before the end of 2016.
- The age of eligibility for the Old Age Security and Guaranteed Income Supplement (GIS) benefits will be restored to 65 years old. The GIS will be increased for low-income single seniors.
- Income splitting for couples with children under 18 years old has been eliminated.
- The children’s fitness and arts tax credits will be eliminated starting in 2017.
- Students will no longer receive the education and textbook tax credits.However, the tuition tax credit remains unchanged.
- The Canadian Child Tax Benefit and the Universal Child Care Benefit will be replaced with a new Canada Child Benefit (CCB). The CCB is aimed at providing more benefits to lower and middle income families. The new monthly benefit will not be taxable but will decline as income rises. It may be fully eliminated when family income reaches approximately $157,000.
- The ability to re-balance a corporate class investment portfolio on a tax deferred basis by switching between funds has been eliminated. While this change will increase tax for investors by eliminating one of the advantages of the corporate class structure, the ability to benefit from lower taxable distributions as well as the ability to receive tax-deferred cash flow distributions remain.
- The capital gains treatment enjoyed by selling linked notes prior to maturity will no longer apply. Returns on linked notes offered after September2016 will retain the same tax character whether or not they are held to maturity. This change means gains on linked notes, either before or at maturity, will likely be treated as interest income, increasing the tax burden for investors.
- The prior government committed to lowering the small business tax rate from 11% to 9%. The decrease in the small business tax rate has been postponed indefinitely, the small business tax rate will remain at 10.5% for the foreseeable future.
- The budget proposes to address the ability for partners of a partnership to access the full $500,000 small business limit by operating through a professional corporation. This tax measure will affect many professionals,including accountants and lawyers, who are members of a professional partnership.
- The ability to draw tax-free funds from a corporation by transferring a life insurance policy from an individual to a corporation when the value of the policy exceeds its cash surrender value has been eliminated.
- Changes to the eligible capital property regime will affect how the purchase and sale of items such as customer lists, licenses, franchise rights,farm quotas and goodwill are treated for tax purposes. I live in rural Manitoba and know that changing the taxation of the sale of quota will impact the retirement plan of many farmers.
The above summary is only a partial list of the proposed changes! The proposed changes will certainly impact your tax situation and could have an impact on your investment portfolio and retirement plan. To get a full understanding of how your personal situation has been affected I suggest a meeting with your tax and financial professionals.
Clinton Orr B.Comm(hons.), CIM, CFP, DMS, FMA lives in Beausejour and is a portfoliomanager with National Bank Financial.
This information transmitted is intended to provide general guidance on matters of interest for the personal use of the reader who accepts full responsibility for its use, and is not to be considered a definitive analysis of the law and factual situation of any particular individual or entity. As such, it should not be used as a substitute for consultation with a professional accounting, tax, legal or other professional advisor. This commentary reflects my opinions alone, and may not reflect the views of National Bank Financial Group.