2016 Tax Updates and Information

Listed below are updates in income tax changes for 2016, as well as other tax information, for individual taxpayers, which may be useful to you.

A. Tax Credits

1.     Fitness and Children’s Arts Tax Credits for children will no longer be available after 2016.
If you are able to prepay the costs in 2016 relating to these expenses for 2017, you will be able to make the claim in 2016.

2.     Textbook and Education Credits will no longer be available after 2016. However, any unused textbook and education tax credits from prior years can be carried forward (The Tuition tax credit for fees paid to a qualifying educational institute will still be allowed).

3.     Renovation for home accessibility for seniors, and these individuals who are eligible for the disability tax credit, is a new tax credit. 

      If you qualify, you are able to make a claim for up to $10,000 of expenses paid towards renovations – eg. Grab bars, wheelchair ramps, walk-in bathtubs, and chair escalator.

4.     School Supply Tax Credit for Teachers is a new tax credit. It is meant to compensate teachers and early childhood educators for up to $1,000 of out-of-pocket qualifying expenses, for which you were not reimbursed.

        NOTE: All qualifying tax credits are entitled to a 15% reduction in taxes payable of the amount of tax credit.

              B.    Tax Free Balancing of Corporate Class Mutual Funds will be eliminated after December 31, 2016.
              If you have this type of investment, you may want to do some planning before December 31, 2016.

              C.    Testamentary Trust Taxation
              New rules in place for 2016 will allow for a 36-month grace period for money received from a testamentary trust to be taxed at
              the marginal rates of the recipient. 

                    After 36 months, all money received from the trust will be taxed at the top marginal rate.

              D.   Principal Residence Sale

              Starting in 2016, if you sell your principal residence, and you qualify for the exemption of not paying income tax on the gain
              from the sale, you will have to report the details on schedule 3 of your income tax return.

              Also, you will have to report the basic information such as the date of acquisition and description of the property, along with the
              proceeds of disposition.

        Other Tax Information

        1.     Tax Loss Selling

                    You should be aware that the final date for selling stocks, in order to lock in capital gains or losses for 2016, is December 23,
              2016 for US and Canadian stocks. 
              Also, be cognizant of the “superficial loss” rules, which would disqualify you from claiming a capital loss on a stock that you
              repurchased within 30 days after the sale date.
              This repurchase will also covers any purchase you make of the same security in your RRSP, TFSA, a corporation controlled by                   you, or any of the above, or an investment account, controlled by your spouse or partner.

      2.     Tax Free Savings Account

          Withdrawals should be made before December 31, 2016, if you are contemplating a withdrawal.

    That will allow you to earn back the TFSA room a year earlier, than if you wait until 2017 to make the withdrawal.
    Make sure that you do not re-contribute to your TFSA account in the same year that you made a withdrawal, since
    overcontribution penalties will be assessed.
    The TFSA dollar limit is $5500 for 2016, and there is no deadline for making a contribution.
    The lifetime limit is $46500 in 2016, and you can contribute up to this amount, if you have not previously contributed. 
    However, you must be at least 18 years of age and resident of Canada, since 2009.

3.     Registered Retirement Savings Plan Contribution

    You have until March 1, 2017 to make contribution for the 2016 tax year, although contributions made earlier will maximize 
    tax-deferred growth, RRSP contribution is limited to 18% of earned income in 2015, with a maximum contribution of $25370, 
    less any pension adjustment.

          Make sure to convert your RRSP account to a Registered Retirement Income Fund (RRIF) by December 31, of the year that you
    turn 71 years of age.
    There can be benefits of contributing to a RRSP that is registered in the name of your spouse or partner, who is not 71 years old.
    Also, it may be beneficial to overcontribute to your RRSP in the year that you turn 71 years of age, pay a penalty of 1% of the
    overcontribution (in excess of $2000) and have the ability to make a deduction from your income for the following year, for the
    amount of the overcontribution.

          4.     Loans to Family Members

          This is a popular form for reducing taxes, by having income taxed in the hands of a family member, who is in a lower tax bracket.
    It involves making a loan to the family member, with the prescribed rate of 1% (an all time low for this rate). This interest must
    be paid by the borrower prior to January 30^th of the following year.
    This rate of interest will remain in effect for the duration of the loan.

     5.     Registered Education Savings Plan

          Since the Federal government provides a Canada Education Savings Grant equal to 20% of the annual $2500 RESP contribution
    per child ($500 annually), this is a worthwhile investment. 

          The child must be under the age of 18 years. There is also the ability to contribute more than the annual $2500 limit per child, if
    you have not done so in the past, and receive the CESG amounts for the missed years of contributions.

    The income withdrawn from the RESP by the child when s/he turns 18 years of age will be taxed in the child’s hands, and will
    more than likely be tax free.

                6.     Charitable Donations, Medical Expenses

     As a rule, most beneficial to pay for the above before December 31, 2016. Also, remember that donations to a registered charity
     of a security eliminates any taxes payable on the capital gain made on the security.

      7.     Business Owners Purchasing Equipment

           Self-employed or small business owners are entitled to take ½ of the first year’s depreciation cost (capital cost allowance) for
     2016, even if the purchase was made on December 31, 2016. In 2017, you would be able to claim the full year’s depreciation

 If you have questions relating to an of the above or any other income tax matters, please feel free to contact me.

2015 Federal Budget announced on April 21, 2015

Family Changes

1. Family tax cut credit worth up to $2,000, through “income splitting” for families with kids under the age of 18

2. Children’s fitness tax credit is now refundable – 15% of fitness expenses up to $1,000

3. Child Care Deduction limit increased by $1,000

·       $8,000 for child under age 7

·       $5,000 for child aged 7-16

·       $11,000 for children eligible for Disability Tax Credit

4. Universal child Care Benefit payments enhanced:

·       $160/month for each child under the age of 6

·       $60/ month for each child age 6-17

5. However, the child tax credit of $2,255 has been eliminated for 2015

·       (This resulted in a $338 tax savings for 2014. i.e.15% x $2,255 = $338 for each child under age 18)

Tax Free Savings Account

TFSA contribution limit for 2015 is $10,000, and for 2016 is $5,500.

RRIF Minimum Withdrawals - have been reduced for years beginning in 2015 as follows:

Donation of Proceeds from Sale of Private Company Shares & Real Estate

·       Concern that form still too complex

·       Budget 2015: Revised form for 2015 reporting

o      If total cost less than $250,000 Canadian

·       Simplified reporting

o      If total cost greater than $250,000 Canadian

·       Existing reporting

EI Premium Rates Reduced (starting in 2017)

·       EI employee premium rate:

o      Currently: $1.88 per $100 of income

o      In 2016:    $1.49 per $100 of income

·       This reduction will benefit both employers & employees 

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Update for 2014 and 2015 personal income taxes, relating to announcements recently made by the Minister of Finance

Income Splitting  

Couples with minor children allowed to split up to $ 50,000 of income (maximum tax savings of $ 2,000 per year)

Child Care Expenses

Amount allowed as deduction – increased to $ 8,000 from $ 7,000 for children under 7 years of age.  Increased to $ 5,000 from $ 4,000 for children aged 7 to 16 years of age, and includes infirm children over 16 years of age.

Increased to $ 11,000 from $ 10,000 for children eligible for the disability tax credit.

Universal Child Credit Benefit

Amount of monthly payment to parent for children under 6 years of age increased to $ 160 from $ 100

New UCCB monthly payments to parent of $ 60 for children aged 6 to age 17 will begin in 2015 (Lump sum will be paid in July 2015 covering 6 months period – January to June 2015)

Note Well – The expanded UCCB program will replace the child tax credit, which is a non-refundable tax credit, and will benefit low-income families the most.

Children’s Fitness Tax Credit

This tax credit doubled from $ 500 per child to $ 1,000 per child in 2014 for children under the age of 16. 

NB: Eliminated for 2017 (See Tax Update and Information for 2016)

New Filing Compliance Procedure for Non-Resident US Taxpayers - (Including US Green Card Holders)

Proposed New Procedure as at June 28, 2012

Taxpayers wishing to use the new procedure will be required to submit the following:

1)     Delinquent US tax returns with the appropriate information returns for the past 3 years

2)     Delinquent FBAR’s (Foreign Bank Account Reports) for the past 6 years

3)     Any additional information regarding compliance risk factors required by future instructions from the IRS

Payments of any federal tax and interest due must accompany the submission.

US tax returns for 2014 can be filed using this procedure.