On March 22, 2016, the new Liberal Federal Government presented its first budget: Growing the Middle Class. This budget heralds a return to deficits as a result of increased spending to stimulate Canada’s sluggish economy. Budget spending focuses on infrastructure projects, public transit, First Nations communities, families, seniors, veterans, health care, post-secondary education, innovation and clean energy. The budget expects a deficit of $5.4 billion for fiscal 2015-2016 and forecasts a deficit of $29.4 billion for 2016-2017.
The small business tax rate will remain at 10.5 per cent. Business owners will face stricter rules with regard to using partnerships or corporations to multiply access to the small business deduction and avoid tax.
Key Personal Measures:
As noted in the government’s December 2015 update, the second marginal income tax rate has decreased from 22 per cent to 20.5 per cent and a new top tax rate of 33 per cent has been added for incomes above $200,000.
The government also returned the TFSA contribution limit to $5,500 (from $10,000) starting January 1, 2016 and promised to index the limit to inflation.
Changes for Families:
Beginning July 2016, the new Canada Child Benefit (CCB) will provide up to $6,400 for each child under the age of 6 and up to $5,400 for children aged 6 to 17. Only families with incomes below $30,000 per year will receive the full benefit. The CCB will replace the Canada Child Tax Benefit and Universal Child Care Benefit.
Several credits are being eliminated including the family tax cut credit for families with at least one child under 18 at home (often called “income splitting” in the media). Also eliminated are the children’s fitness and arts tax credits (over two years), and the education and textbooks credits. The pension splitting credit and tuition credit have not been eliminated.