Typically when I read a budget, like most financial types, I just want to get past the political commentary and get to the bottom line. I want to know emerging trends. I want to know what’s changing, who’s paying more taxes, who’s paying less this time around. I want to see what individuals, families, and small businesses can do to optimize their tax positions (i.e. pay their fair share and no more).
But a federal budget is about much more than the amount of tax we pay. It presents a plan for the use of finite resources. It speaks to the social fabric of our communities and how we define and pursue the lifestyle we want, individually and as a nation. As you read through the highlights, take a few minutes to ponder the potential impact (beneficial or detrimental) on your own situation.
Let’s start with the easy stuff – the actual items in the budget. During our “Clarity in 2016” Round Tables at the beginning of the year, we discussed a number of the proposed federal budget changes so that you would have a head start in planning your financial agenda for the year. As expected the federal government delivered on those proposals when they tabled their first budget on March 22, 2016. (The budget has to be debated before becoming law, but with a majority government, it is expected to be passed without substantive amendments.)
As typical of many budgets, there was a little something for everyone. Major highlights included:
- Adjustment of Federal income tax rates – the rate on taxable income between $45,000 and $90,000 was reduced from 22% to 20% and on amounts over $200,000 the rate was increased from 29% to 33%. (These rates are only the federal portion – each province sets its own income tax rates.) The intent is to improve the financial security of middle-income families. Higher-income earners have to pay more.
- $2.9 billion over five years to address climate change and air pollution issues.
- $120 Billion over the next 10 years allocated to Infrastructure spending, particularly transit, waste, water, and housing ($11.9 billion during the first 5 years).
- Several initiatives to increase funding for Indigenous Peoples to encourage education, improvements for water and housing, as well as specific funding of an Inquiry for Missing and Murdered Indigenous Women.
To clarify what affects you directly and how it will impact your financial picture, review the following specific budget items:
- The Canada Child Benefit aims to simplify by providing one single monthly payment to each family.
- Both the Children’s Fitness Tax Credit and the Children’s Arts Tax Credit are being reduced to half for 2016 and will be completely eliminated as of 2017.
- Monthly tax-free benefits for families will be increased to a maximum of $6,400 per year per child and clawed back completely if the household income exceeds $190,000.
- Visit the Canada Child Benefit Calculator to illustrate how these changes may impact you.
- Pension income splitting continues.
- Guaranteed Income Supplement (GIS) is increased by 10% to almost $1,000 per year, and can now be split between couples.
- OAS eligibility has been changed back from age 67 to age 65.
- A Seniors-Price-Index will be developed to ensure that the value of benefits will not be eroded by inflation.
- Canada Student Grant amounts increase from the current maximum of $2,000 to $3,000 per student, depending on family income.
- Student loan repayment does not start until income reaches $25,000/year.
- Co-op placements for students will be supported by $73 million in programs this year.
For Veterans and Their Families
- Veteran Affairs Canada will re-open up to nine offices.
- The majority of income support and benefits will be linked to inflation.
- Direct payments, disability pensions, and duration increase.
- As of October 1, 2016, the ability to make tax-free switches in Mutual Fund Corporations will be eliminated. This applies to non-registered investments only and is designed “to ensure the appropriate recognition of capital gains”. Currently, you can switch units of one mutual fund “class” to another without triggering a capital gain. (Tax-free switches in respect of management fees or expenses – such as series A to series F of the same mutual fund – will not trigger tax.)
- The Labour-Sponsored Venture Capital Corporations (LSVCC) federal tax credit will be restored to 15% for 2016 and beyond. Golden Opportunities, a Saskatchewan-based Labour-Sponsored Fund, is one we have been working with. For Manitobans, the total tax credit in 2016 for this investment will be back to 30%.
- For those who want to save on taxes at all costs, the mineral exploration tax credit has been extended for another year to March 31, 2017. This means that flow-through share offerings will continue to be eligible for significant tax benefits. (Flow-through share offerings are high-risk ventures for higher-income earners.)
For Those Affected by Unemployment
- It will become easier to qualify for Employment Insurance, depending on where you live. The waiting period has been reduced from two weeks to one, effective January 1, 2017. The maximum benefit period has been extended to 70 weeks.
- The contingency fund has been increased to $6 Billion for this budget (up from $3 Billion), providing the ability to adjust, if necessary, or return the funds if not used.
For Small Business
- While the promise of increased economic activity and a better-equipped labour force is good news, there were no special tax provisions for small businesses. Federal tax rates will remain at 10.5% for Canadian corporations that qualify as small businesses.
For more information, visit the Budget 2016 website.
Have fun with some “futurecasting” as you consider how the trends reflected in this budget might affect your personal and financial life. If you attended the Clarity Round Table, you might use the Planning Agenda 2016 included in your workshop materials to record your discoveries. Contact your advisor for further discussion.