It now appears that the recently elected Federal Government will introduce their new personal income tax measures as promised. These include:
- Reducing the second lowest personal tax rate to 20.5% from 22%;
- Increasing the personal tax rate on income over $200,000 to 33% from 29%.
As a result, the top marginal tax rate in Ontario will increase from 49.53% in 2015 to 53.53% in 2016 (assuming a January 1, 2016 effective date).
Furthermore, the top marginal rate on dividends (eligible and non-eligible) will be 39.34% and 45.30% respectively (up from 33.82% and 40.13% respectively) and the new effective rate on capital gains will be 26.76% (up from 24.76%.).
Given these new tax rate changes, consideration should be given to accelerating personal income to 2015 instead of 2016 and future years.
This may be done by paying bonuses in 2015 that would normally be accrued in 2015 but not paid until 2016. Furthermore, also consider declaring dividends (either eligible or ineligible) in 2015 instead of 2016.
Consideration should also be given to deferring certain discretionary deductions (including RRSP’s and loss carry forwards) to future years when the top tax rate and therefore the tax benefit will be higher.
Everyone’s tax planning situation is unique. If you would like to discuss the various options further, please contact your Lipton advisor.