RICHARD W.R. YASINSKI CFP – The Ottawa Construction News
It’s important for us to stay on top of issues that pertain to the financial health of you and your family. Below is a brief overview of the federal budget introduced March 22 by Finance Minister Bill Morneau. The information is presented based on who it would affect most.
Repealing the Federal Balanced Budget Act
The balanced budget legislation enacted by the previous government will be repealed to allow a gradual return to a balanced budget.
Comment: may be okay if we get back to balanced budgets as soon as possible. If not, we are downloading these expenses to our children.
No changes to federal personal tax rates
For families with children under 18
A new Canada Child Tax Benefit (CCTB) of up to $6,400 per child under 6 and $5,400 per child aged 6 -17. This replaces the Universal Child Care Benefit.
UCCB Comment: this increases the benefit to families slightly. The Family Tax Cut, which allowed a certain degree of income splitting, will be eliminated.
Comment: This benefit primarily helped families with one spouse at a low income. The children’s fitness and arts tax credit of 15 per cent of up to $1,000 of eligible fitness and arts expenses for children under 16 will be eliminated.
Comment: It was good while it lasted.
For university students beginning in January 2017
The education tax credit provides a 15 per cent tax credit of $400 per month of full time and $120 per month of part time schooling, and the textbook tax credit of 15 per cent of $65 monthly of full time enrollment and $20 part time is eliminated as of January 17.
Comment: this will increase the tax students will pay on income above the Basic Personal Exemption of approximately $558. Typically, this tax credit was either transferred to a parent or carried forward until the student earned taxable income – ouch. The tuition tax credit remains on eligible tuition fees.
Comment: with the typical annual tuition of approximately $7,000 at a university, this $1,000 tax reduction will continue to help.
For income earners above $200,000
A new 33 per cent top federal personal tax rate was introduced previously. This budget proposes to provide a 33 per cent charitable donations tax credit to trusts and apply the new 33 per cent top rate on excess employee profit sharing plan contributions, increasing the tax rate on personal service business income earned by corporations from 28 per cent to 33 per cent and amending the recovery tax rule for qualified disability trusts to refer to the new 33 per cent top rate.
For incorporated small business owners
The corporate small business reduction to remain at 10.5 per cent and will not decrease as originally planned.
For investors holding corporate class mutual fund shares in non-registered accounts
Starting Oct. 1, 2016, investors in corporate class funds will no longer be able to switch between funds in the corporation on a tax deferred basis. Any switches made by investors will be considered a taxable disposition at fair market value (however, this does not apply to switches between series of the same fund).
Comment: Although the tax benefit of holding these shares has declined, there are still advantages to these structures with respect to lower annual taxable distributions and the ability to structure future income withdrawals tax effectively. Anyone holding these types of investments needs to review their portfolio and make changes by the October deadline.
Canada Pension Plan enhancements are planned with a decision to be made before the end of 2016. Old Age Security eligibility will be restored to 65 from 67.
Single seniors and seniors living apart for reasons beyond their control will be eligible for additional benefits.
Incorporated small business measures
A number of changes in this area may require more detailed explanations best delivered by a Chartered Professional Accountant (CPA). Any individual who owns shares in a small business corporation could contact me for a summary of changes and to discuss the potential impact on your business and need for further discussions with your CPA.
Richard Yasinski is an independent financial planner with his own firm, Financially Sound Inc., in practice in Ottawa since 1996. He can be reached by email at ryasinski@financiallysound. caor by phone at (613) 271-9994 ext. 101.