www.liptonllp.com

December 2015

15
DEC
2015

Income Tax Rate Changes Effective January 1, 2016

Personal tax rates

On December 7, 2015, Finance Minister Bill Morneau introduced changes to various personal tax rates by way of a Notice of Ways and Means Motion.

Effective January 1, 2016, the personal tax rate on income between $45,283 and $90,563 will decrease from 22 per cent to 20.5 per cent and the tax rate for income over $200,000 will increase from 29 per cent to 33 per cent.

Impact of rate changes on Canadian Controlled Private Corporations (CCPCs)

As a result of the above-noted personal income tax changes, the refundable corporate tax on investment income earned in a CCPC will also be changing as follows:

  • Refundable tax on CCPC investment income will be increased to 10 2/3 per cent from 6 2/3 per cent,
  • The dividend refund rate on taxable dividends paid by a corporation will increase from 33 1/3 per cent to 38 1/3 per cent,
  • The Part IV tax rate will increase from 33 1/3 per cent to 38 1/3 per cent.

As a result, if a CCPC has a refundable dividend tax account balance on December 31, 2015, consideration should be given to paying a dividend prior to January 1, 2016.

Trusts

The top personal tax rate will also impact inter vivos trusts. They will also have a top tax rate of 33 per cent, effective in 2016.

Donations

The tax credit for donations in excess of $200 will be increased to the new highest marginal tax rate of 33 per cent in 2016, up from the current 29 per cent.

The Tax Free Savings Account (TFSA)

The annual contribution limit for TFSAs (which was increased to $10,000 in 2015) will be reduced to $5,500 for 2016.

Stock options

Changes to stock options were not addressed, although it is now widely expected that any changes to these will be effective from the date the changes are announced and will not affect stock options issued prior to that date.

To assess the potential impact of the proposed tax amendments, please contact your Lipton advisor.

comment : 0