Middle Class Tax Cut
Starting 2016, most of us are going to have more money in our pockets, thanks to the Liberal government’s middle class tax cut. This new tax rule will cause a reduction in the federal tax rate for income between $45,283 and $90,563 to 20.5% (from 22%) and an increase of 4% in the tax rate for income over $200,000 to 33% (from 29%), starting January 1, 2016. The government estimates that about nine million people will benefit from this tax change, with the average reduction being about $330 for an individual or $540 for a couple. But whether you receive that much depends entirely on your income.
With the coming tax rate changes, tax planning is crucial. For people whose income is within the tax rate cut range, it may be more beneficial to claim the deduction, such as the RRSP contribution, against 2015 income to maximize its value. On the other hand, for those who make more than $200,000, delaying claiming RRSP contribution until 2016 may provide more tax saving. Additionally, individuals with high income over $200,000 may also want to maximize his 2015 income (such as capital gain, bonus, etc.) before the new higher tax rates becomes effective.
Tax-free Saving Account Contribution Limit
Although most of us will not be negatively affected by the new tax bracket, everyone will be impacted by the tax-tree savings account contribution limit reduction to $5,500 (from $10,000) per year, starting in 2016.
The annual contribution limit has changed several times sine TFSAs were initially introduced in 2009. You can contribute to a TFSA as long as you are 18 or older and resident in Canada. You can also carry forward unused contribution room indefinitely and hold more than one TFSAs, subject to your contribution limit. Different from RRSP, TFSA contributions are not tax-deductible but can be withdrawn tax-free.
Going forward, the federal Liberal government will also replace the Universal Child Care Benefit (UCCB) with the tax-free Canada Child Benefit (CCB) that would start in July 2016. However, until the government rolls out the new tax-free CCB in July 2016, the old system still remains in place. Although the details of the new plan may not be fully known until in the next few months, the Liberals have said the amount of new child benefit payment will be based on a family’s total income – at least it will be for families with income less than $150,000 a year.
In addition to the above tax rate changes, Ottawa is ending the controversial income-splitting plan for families in 2016.
Mainstreet Equity Corp. is a publicly traded (TSX: MEQ) residential real estate company in Canada. Mainstreet currently owns and operates properties in Surrey, BC; New Westminster, BC; Abbotsford, BC; Calgary, AB; Cochrane, AB; Lethbridge, AB; Edmonton, AB; Fort Saskatchewan, AB; and Saskatoon, SK.
Mainstreet provides affordable, renovated apartment suites to Canadians, and is committed to creating real value without diluting shareholder interests.