***Excerpt from Tax highlights from the 2016 Federal budget (www.CI.com Mar 23, 2016)

Personal income tax rates

The new federal marginal tax rate of 33% for taxable income in excess of $200,000 became effective January 1, 2016, as did the reduction of the second bracket tax rate from 22.0% to 20.5%. Tax brackets have been indexed by 1.3% for 2016 to reflect the impact of inflation. The effective rates for 2016 and corresponding tax bracket thresholds are shown in the following table.

Taxable income range	Proposed 2016 tax rates	Previous 2015 tax rates
$11,475 – $45,282	15.0%	15.0%
$45,283 – $90,563	20.5%	22.0%
$90,564 – $140,388	26.0%	26.0%
$140,389 – $200,000	29.0%	29.0%
$200,001 or more	33.0%	29.0%

 

Taxation of shares of a mutual fund corporation

Many mutual fund corporations are organized as “switch funds” which offer different types of asset exposure in different funds, often called a class. Investors have been able to exchange shares of one class of the mutual fund corporation for shares of another class, and this exchange has not been deemed to be a disposition for income tax purposes. To ensure recognition of capital gains, Budget 2016 proposes to amend the Income Tax Act so that an exchange of shares of a mutual fund corporation (or investment corporation) that results in the investor switching between class funds will be considered to be a disposition at fair market value for tax purposes. (The measure will not apply to switches between different series of shares within the same class, only from class to class. This measure will apply to dispositions of shares that occur after September 2016.

 

Canada Child Benefit

To simplify and consolidate existing child benefits, Budget 2016 proposes to replace the CCTB and UCCB with a new Canada Child Benefit. The Canada Child Benefit will provide a maximum benefit of $6,400 per child under the age of six and $5,400 per child aged six through 17. The benefit will be phased out based on family net income and number of children as indicated below:

Canada child benefit phase-out rates and adjusted family net income thresholds
	PHASE-OUT RATES (%)
Number of children (for phase-out rates)	$30,000 to $65,000	Over $65,000
1 child	7.0	3.2
2 children	13.5	5.7
3 children	19.0	8.0
4 or more children	23.0	9.5

 

To recognize the additional costs of caring for a child with a severe disability, Budget 2016 proposes to continue to provide an additional amount of up to $2,730 per child eligible for the disability tax credit. The phase-out of this additional amount will be made to generally align with the Canada Child Benefit.

Entitlement to the Canada Child Benefit for the July 2016 to June 2017 benefit year will be based on adjusted family net income for the 2015 taxation year. Canada

Child Benefit payments will start in July 2016. The UCCB and CCTB will be eliminated for months after June 2016.

 

Elimination of family tax cut

The Family Tax Cut, a non-refundable income splitting tax credit available for couples with at least one child under the age of 18, allows a higher-income spouse or common-law partner to notionally transfer up to $50,000 of taxable income to their spouse or common-law partner for the purpose of reducing the couple’s total income tax liability by up to $2,000. Budget 2016 proposes to eliminate this credit for the 2016 and subsequent taxation years.

 

Children’s fitness and arts tax credits

Budget 2016 proposes to phase out the children’s fitness and arts tax credits by reducing the 2016 maximum eligible amounts to $500 from $1,000 for the children’s fitness tax credit and to $250 from $500 for the children’s arts tax credit. The supplemental amounts for children eligible for the disability tax credit will remain at $500 for 2016. Both credits will be eliminated for the 2017 and subsequent taxation years.

 

Education and textbook tax credits

The education tax credit provides a 15% non-refundable tax credit of $400 per month of full-time enrolment in a qualifying educational program and $120 per month of part-time enrolment in a specified educational program at a designated educational institution. The textbook tax credit provides a 15% non-refundable tax credit of $65 per month of full-time enrolment in a qualifying educational program and $20 per month of part-time enrolment in a specified educational program at a designated educational institution.

A tuition tax credit is also available that provides a 15% non-refundable tax credit on eligible fees for tuition and eligible examination fees paid to certain educational institutions.

Budget 2016 proposes to eliminate the education and textbook tax credits. Note this measure does not eliminate the tuition tax credit. Changes will be made to ensure that other income tax provisions – such as the tax exemption for scholarship, fellowship and bursary income – that currently rely on eligibility for the education tax credit or use terms defined for the purpose of the education tax credit will be unaffected by its elimination.

This measure will apply effective January 1, 2017. Unused education and textbook credit amounts carried forward from years prior to 2017 will remain available to be claimed in 2017 and subsequent years.

 

Teacher and early childhood educator school supply tax credit

Teachers and early childhood educators often incur at their own expense the cost of supplies for the purpose of teaching or otherwise enhancing students’ learning in the classroom or learning environment. To provide tax recognition for these costs, Budget 2016 proposes to introduce a teacher and early childhood educator school supply tax credit. This measure will allow an employee who is an eligible educator to claim a 15% refundable tax credit based on an amount of up to $1,000 in expenditures made by the employee in a taxation year for eligible supplies.

Teachers will qualify as eligible educators if they hold a teacher’s certificate that is valid in the province or territory in which they are employed. Likewise, early childhood educators will qualify as eligible educators if they hold a certificate or diploma in early childhood education recognized by the province or territory in which they are employed.

Eligible supplies will normally include durable and consumable goods including games and puzzles, supplementary books for classrooms, educational support software, construction paper for activities and art supplies. This measure will apply to supplies acquired on or after January 1, 2016.

 

Retirement Measures

Canada Pension Plan enhancements

Budget 2016 proposes to launch consultations in the coming months to give Canadians (except workers in Quebec who contribute to the Quebec Pension Plan) an opportunity to share their views on enhancing the Canada Pension Plan. In December 2015, the Government began discussions on enhancing the Canada Pension Plan with provinces and territories with the goal of being able to make a collective decision before the end of 2016.

Restoring Old Age Security eligibility ages

Budget 2016 proposes to cancel the provisions in the Old Age Security Act that increase the age of eligibility for Old Age Security and Guaranteed Income Supplement benefits from 65 to 67 and Allowance benefits from 60 to 62 over the 2023 to 2029 period.

Support for senior couples living apart

Budget 2016 proposes to introduce amendments to the Old Age Security Act that will ensure that couples who receive Guaranteed Income Supplement and Allowance benefits and have to live apart for reasons beyond their control (such as a requirement for long-term care) will receive higher benefits based on their individual incomes. Legislation is already in place to allow for senior couples who are both Guaranteed Income Supplement recipients to receive benefits based on their individual incomes if the couple is living apart for reasons beyond their control.

Increasing the Guaranteed Income Supplement for single seniors

Budget 2016 proposes to increase the Guaranteed Income Supplement top-up benefit by up to $947 annually starting in July 2016, to support those seniors who rely almost exclusively on Old Age Security and Guaranteed Income Supplement benefits. Single seniors with annual income (other than Old Age Security and Guaranteed Income Supplement benefits) of about $4,600 or less will receive the full increase of $947. Above this income threshold, the amount of the increased benefit will be gradually reduced and will be completely phased out at an income level of about $8,400

 

Corporate Tax Matters – Corporate income tax rates

There were no changes proposed to any corporate income tax rates for 2016. The table below shows federal tax rates and the small business limit for 2016.

Category	2016 tax rates
General rate	15.0%
Manufacturing & processing rate	15.0%
Small business rate	10.5%
Small business limit	$500,000
Investment tax rate (CCPC)	38.67%

Budget 2016 proposes the small business tax rate remain at 10.5% after 2016. Previously, Budget 2015 had proposed to reduce the small business tax rate from 11% to 9.0% over 2015-2019. In order to preserve the integration of the personal and corporate income tax systems, Budget 2016 also proposes to maintain the current gross-up factor of 17% and the dividend tax credit rate of 10.5% applicable to non-eligible dividends as well.