The information below is brought to you by the H&K Advisory Group, BMO Nesbitt Burns. For a more information on the following changes or to get a complimentary review of your portfolio, please contact Francois Helou at 416-359-7053 or Francois.Helou@nbpcd.com. To learn more about the H&K Advisory group, please visit www.hkadvisorygroup.com.
On December 7, 2015, Finance Minister Bill Morneau released details on new tax reform in Parliament to formally introduce measures from the Liberal election platform. These changes took effect January 1, 2016:
Changes to Federal Personal Tax Rates:
The table below outlines the 2015 and new 2016 federal income tax brackets and rates. The changes seek to decrease the “middle class” tax rate by 1.5% and introduce a new top tax bracket on income earned over $200,000.
Existing and proposed 2016 personal federal income tax brackets and rates
| Taxable Income | Existing Rate (%% | New Rate (%) |
| Up to $45,282 | 15.0 | 15.0 |
| $45,282 – $90,563 | 22.0 | 20.5 |
| $90,563 – $140,388 | 29.0 | 29.0 |
| $140,388 – $200,000 | 29.0 | 29.0 |
| Over $200,000 | 29.0 | 33.0 |
TFSA Annual Contribution Limits:
The 2015 federal budget increased the TFSAs annual contribution limit from $5,500 to $10,000. Effective January 1, 2016, the newly elected government rolled the annual TFSA contribution limit back to $5,500 for 2016.
Trust and Estates:
Trust and estates are also subject to flat top rate taxation at the new 33% federal tax rate. New 2016 tax legislation aligns testamentary trusts (which are trusts created at death, typically in the deceased’s will) with inter-vivos trusts (i.e., trusts created during one’s lifetime) to apply the flat top personal marginal tax rate of 33% to any income retained in the trust. However, graduated rate estates and qualified disability trusts are not subject to these forthcoming changes and will remain subject to the graduated rate system.
Kiddie Tax:
Certain income splitting arrangements involving minor children, such as the payment of taxable dividends from private corporations or through a trust to a minor, may be subject to the ‘Tax on Split Income’. This “kiddie tax” applies the top rate of taxation instead of the marginal tax rate that would otherwise apply to the child’s low income. Effective in 2016, the “kiddie tax” rate increased to the new 33% top federal tax rate on affected income.
Donation Tax Credits:
As of 2015, individuals were able to claim a donation tax credit equal to the top federal marginal tax rate of 29% on qualifying charitable donations over $200. Under the 2016 changes, the federal charitable donation tax credit allows higher income donors to claim a 33% federal tax credit, but only on the portion of donations made from income that is subject to the new 33% top marginal tax rate.
Investment Income of Private Corporations:
The ‘integration’ tax system for private corporations, which seeks to ensure consistency in taxation between individuals earning investment income personally or through a private company, have
also been amended to ensure its effectiveness with the new highest personal tax rate.
Existing and combined top marginal tax rates by sources of income for an Ontario resident individual
| 2016 | 2015 | Increase | |
| Ordinary income | 53.53% | 49.53% | 4.00% |
| Capital gains | 26.76% | 24.76% | 2.00% |
| Eligible dividends | 39.34% | 33.82% | 5.52% |
| Ineligible dividends | 45.30% | 40.13% | 5.17% |
The above income tax measures were formally enacted into law, effective 2016. The Liberal tax measures outlined above are wide-ranging and may have significant implications to your particular tax situation. You should consult with your tax advisors for specific advice and direction on how your particular situation may be affected by these tax changes.
If you are already a client of BMO Nesbitt Burns, please contact your Investment Advisor for more information.
BMO Nesbitt Burns Inc. (BMO NBI) provides this commentary to clients for informational purposes only. The information contained herein is based on sources that we believe to be reliable, but is not guaranteed by us, may be incomplete or may change without notice. The comments included in this document are general in nature, and professional advice regarding an individual’s particular position should be obtained. BMO NBI.is a subsidiary of Bank of Montreal, Member-Canadian Investor Protection Fund and Member of the Investment Industry Regulatory Organization of Canada. “BMO (M-bar Roundel symbol)” is a registered trademark of Bank of Montreal, used under licence. “Nesbitt Burns” is a registered trademark of BMO NBI, used under licence.
