The start of a new year for most Canadians signals a feeling of optimism, a time of reflection, and a renewed sense of setting goals.
After the 2015 election, the management of Canada shifted from one political body to another, which means Canadians will see and feel noticeable changes in the years to follow.
Recent government changes may be causing more worries than usual for Canadians. The reality is that these changes are most directly felt by the tax system, because public programs and initiatives receive funding from the public purse. As contributors of this pool of government money, the key is to understand what the changes are, how it impacts us directly, and how we can plan ahead.
Here are five important updates to know before you file this year:
Reduced: Children’s Fitness and Arts Credits
The maximum fees allowable per child for these two credits have been reduced in the following way:
- For the arts amount, maximum fees allowable to claim per child have gone from $500 to $250. This amount is non-refundable, which means that if you have more credits than income tax, you will not be refunded the difference.
- For the fitness amount, the maximum allowable fees to claim per child have gone from $1,000 to $500. This amount is refundable, which means if you have more credits than income tax, the CRA will refund you the difference.
The credit rate for both of these credits is 15%, which means you can receive a maximum of 15% of your total expenses related to arts and fitness. For more information on allowable fees – expenses that are eligible for a tax credit – visit this page of the CRA website.
Note: Tax Year 2016, what we file this year, will be the last year these credits are applicable. The children fitness & arts credits have been eliminated for Tax Year 2017, what we file in 2018.
New: Home Accessibility Expenses Credit
The non-refundable tax credit allows Canadians eligible for the disability tax credit or over 65 years of age to claim renovation expenses that allow the eligible person to safely access and move around their home. The credit extends to the eligible person’s caregivers, such as their spouse or children, who can also claim the credit. Any home renovated must be owned by the eligible person or caregiver, and the maximum amount of allowable renovation expenses is $10,000. The credit rate is 15%, which means the maximum credit you can receive is $1,500. For more information, visit this page of the CRA website.
New: Eligible Educator School Supply Credit
If you were an educator in an elementary, secondary or a regulated childcare facility in 2016 and hold a teaching certificate, you can claim the expenses incurred for eligible teaching supplies. A refundable credit, this means if you have more credits than income tax, the CRA will refund you the difference. The maximum amount of allowable expenses is $1,000. This credit rate is 15%, which means the maximum credit you can receive back is $150. For more information on which supplies are eligible, visit this page of the CRA’s website.
Eliminated: Family Tax Cut Credit
Introduced in 2014 for families with children under 18 years old, the credit allowed couples with young children to lower the tax bracket for the spouse or common-law partner with a higher taxable income. This was a tax-planning technique, known as income splitting, to ease the tax burden on young families. The family tax cut credit has been eliminated as part of the government’s shift to focus on larger benefits programs.
New: Income Tax Rate Changes
The second personal income tax rate (applicable to folks in the second tax bracket, colloquially referred to as “the middle class”) has been reduced from 22 percent to 20.5 percent. This means that any income gained between $45,282 and $90,563 will be charged 1.5% less income tax than in 2015. Single individuals in this bracket will see an average tax reduction of $330 per year, and couples will see an average tax reduction of $540 per year.
A top personal income tax rate (applicable to high-income earners in the top income tax bracket) has been introduced at 33 percent. This means for every dollar you gained above $200,000, you will be asked to pay 33% in income tax.
If you are a regular contributor to a Tax-Free Savings Account, pay close attention to your 2016 contributions, because the annual limit was reduced from $10,000 to $5,500.
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