The Liberals’ taxing policies: What they will mean to you and when
Depending on your tax bracket, Monday's Liberal majority government may either cost you or save you big bucks. But the key question many are asking is: when?
Here are some of the Liberals' promised tax changes, what they may mean to you and when they might take effect.
LOWER TAXES FOR MIDDLE CLASS
The Liberals stated that their first priority will be to cut the tax rate from 22 per cent to 20.5 per cent for the middle income-tax bracket, which affects Canadians with taxable annual income between $44,701 and $89,401. There is some speculation that this could be done retroactively to the beginning of 2015, but more likely, this rate change would be effective Jan. 1, 2016, as Liberal Leader Justin Trudeau would have to act quickly, something Alberta Premier Rachel Notley did this spring.
Notley campaigned on a promise of higher taxes for Albertans. She won the election on May 5, was sworn in on May 24, introduced draft legislation three weeks later on June 18, which was passed into law a mere 11 days later, on June 29. The tax hikes were enacted for 2015 and were effectively prorated from Oct. 1.
TAX ON WEALTHIEST ONE PER CENT
To help pay for the middleclass tax cut, the Liberals also promised to introduce a new tax bracket of 33 per cent for individuals earning more than $200,000 annually. The current top bracket of 29 per cent affects individuals making taxable income over $138,586. For these high-income earners, their total combined federal/provincial marginal tax rate will exceed 50 per cent in more than half the provinces.
The Liberals projected this new tax bracket would bring in $3.4 billion by 2016/17; however, they reduced this estimate by $600 million to take into account that high earners "may attempt to use tax-planning strategies to avoid higher taxes." To help combat this, the Liberals said they will increase enforcement by the Canada Revenue Agency "to ensure tax liabilities are collected."
Trudeau has a made a big deal about cancelling incomesplitting, technically known as "The Family Tax Cut" and in so doing, saving the government $2 billion annually. In fact, Trudeau went so far as saying that he and his wife weren't going to claim the credit on their 2014 returns, giving up $2,000.
Income-splitting is said to benefit only 15 per cent of Canadian households and provides no advantage to single parents or to couples whose incomes are similar. It also doesn't help those who don't have kids or who have kids over 18.
While it's possible that such a move could be cancelled retroactive to 2015, doing so could be a major blow to families who have relied on the up-to-$2,000 benefit, the maximum savings.
UNIVERSAL CHILD CARE BENEFIT
The Liberals campaigned on a promise to replace Conservative Stephen Harper's Universal Child Care Benefit with the new "Canada Child Benefit," ending the monthly, taxable cheques of $160/month for each child under six and $60/month for kids ages six through 17. Instead, the new benefit will be tax-free as well as income-tested. It's also a priority for Trudeau so it's possible the new benefit may start in the next few months. The key is whether families will be better off.
The Liberals have promised to roll back to $5,500 the TFSA annual limit, which was increased to $10,000 earlier this year by Harper's government. While legally, the Liberals could decide to make such a change retroactive to 2015, it would create an administrative nightmare for both the CRA and TFSA providers, not to mention TFSA holders who have already contributed $10,000 based on the current limit.
EDUCATION AND TEXTBOOK TAX CREDITS
The federal education amount is a non-refundable credit worth 15 per cent times $400 for each month of fulltime post-secondary or $120/month for each month of parttime schooling. The textbook amount is a similar credit, only available if you can claim the education amount and is also worth 15 per cent times $65/month of full-time postsecondary or $20/month of part-time school.
The Liberals plan to repeal these "modest" credits, since they only provide a benefit at the end of the tax year and "are not targeted at students from low-and middle-income families." Instead, they vow to increase non-repayable grants "that put money directly into the pockets of students."
Given students may have already budgeted for these credits for 2015-16, this change may not happen until a budget.