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Canadian Taxpayers Federation Calculates New Year Tax Benefits

by Mike Godfrey, Tax-News.com, Washington

30 December 2015


The majority of Canadians will benefit from the new Liberal Government's plan to cut income tax rates for the "middle class," according to the Canadian Taxpayers Federation (CTF).

From January 1, 2016, the 22 percent rate on incomes between CAD44,701 (USD32,222) and CAD89,401 will be cut to 20.5 percent. A new rate of 33 percent will apply to individual taxable income in excess of CAD200,000.

In addition, the Government will scrap the "income splitting" measure introduced by the former Conservative administration, which allowed a higher-income spouse to effectively transfer up to CAD50,000 of their taxable income to a spouse in a lower tax bracket for federal tax purposes. The Universal Child Care Benefit will be replaced with a tax-free, means-tested Canada Child Benefit (CCB) from July 2016, and the Tax-Free Savings Account annual limit will be reduced from CAD10,000 to CAD5,500.

As part of its New Year's Tax Changes report, the CTF calculated the tax impact for families for 2016 for 34 hypothetical Canadian households.

CTF Federal Director Aaron Wudrick said: "The range varies widely, from a few hundred to about CAD2,000 in savings, but it's clear that most Canadian families will have more money in their pockets as a result of these tax changes. Dual-income households with children, where each spouse earns a relatively equal amount, will benefit most."

The CTF calculated that a two-child, single-income family in Ontario earning CAD30,000 a year will save CAD1,597 a year, while a two-child, two-income family in Saskatchewan earning CAD80,000 a year will save CAD1,414 as a result of the changes. The CTF also found that a two-child, one-income family in Quebec earning CAD100,000 a year can expect to save CAD164 and that a two-child, one-income family in Alberta earning CAD250,00 will benefit to the tune of CAD7,643.

However, Wudrick noted that high-income earners face substantial tax hikes and the rollback of the TFSA annual contribution limit will reduce future savings for millions. Bracket creep will affect all taxpayers in Manitoba, Prince Edward Island, and Nova Scotia, and high-income earners in Ontario and New Brunswick, he added.

Manitoba, Prince Edward Island, and Nova Scotia did not index any of their tax brackets for 2016, and Ontario and New Brunswick no longer index their top brackets. Alberta has not indexed its new brackets for 2016, but will begin indexing them in 2017.

"While most provinces adjust their tax brackets for inflation, ensuring that salary increases that match inflation don't push earners into a higher income tax bracket, provinces that don't punish workers and leave them worse off. It's shameful a province like Nova Scotia will squeeze an additional CAD20 from those who only make CAD30,000 a year with this hidden tax hike," Wudrick said.

TAGS: tax | tax thresholds | tax credits | tax rates | Canada | tax reform | inflation | individual income tax

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