Happy New Year’s from all of us at Woodman White Olsen & Co., LLP.
There have been some fairly significant changes in the rates of tax over the past six months, starting with the Alberta announcement of tax increases of 2% on corporate income over the $500,000 small business limit or on corporate income that is not eligible for the small business deduction such as property income. As well there has been an increase in personal rates of anywhere between 0% and 5% based on the amount of taxable income. While these increases were applied at ½ the announced change for 2015 income, they come fully into force tomorrow morning (2016).
And then in December, the new federal government announced its changes which also take effect after midnight.
While those with personal taxable income between $45,282 and $90,563 will see a reduction of 1.5% on their income above $45,282, those with income above $200,000 will see a 4% increase in the amount of tax on their taxable income above $200,000.
We need to remember that the rate changes both federally and provincially apply to just that portion of the income in the particular income bracket as everyone still gets the benefit of the lower tax rates on the portion of their income within those lower ranges.
Corporations with investment income will see a large change in the tax rates applied to the investment income – 4% – however, if this is flowed out to the shareholders as dividends, the process involved in the Refundable Dividend Tax on Hand method will eliminate that increase – corporately. However, the personal rates applied to dividend income have increased, particularly in Alberta and where the taxable income is entering the top marginal rates.
It will be much more important to ensure that planning of the method in which the income is received takes place as we move through the next several years if you are a business owner.
We also expect that our clients will experience some surprises as we prepare the 2015 personal income tax returns. This surprise is due to the change in the method of getting personal credits for children for the 2015 and subsequent tax years.
Those people who have children under the age of 18 and who are employees – and who completed the new TD1 form for their employers, will have seen that the federal tax deduction from their paycheque increased by $28 every month and won’t be surprised when signing their tax return.
However, self-employed people with children are going to see an increase in the federal taxes payable for 2015 of $338 per child.
This isn’t actually an decrease of net family cash flow as, during 2015 the federal government had increased the Child Tax Benefits received by eligible families to compensate for removing the federal tax credit for children, but where tax isn’t deducted from your income, the taxes payable at the end of April 2016 will be larger because of this.
Please remember too, that the amount that can be deposited to your Tax Free Savings Account has reverted to $5,500 for any amounts deposited after December 31, 2015.
Please don’t hesitate to contact us at the office at 403-327-3101 for assistance with your tax planning needs – we would be happy to help!