Corporate and Personal Income Tax Rates for 2016
The 2016 BC Budget that was delivered on February 16, 2016 does not note any changes on general corporate or personal income tax rates.
The combined federal and provincial general corporate income tax rate for 2016 remains at 26%. The combined federal and provincial small business rate on the first $500,000 active business income for 2016 is 13%, down from 13.5% for 2015. The BC small business rate will further decrease to 12.5% on January 1, 2017, 12% on January 1, 2018, and 11.5% on January 1, 2019.
The top marginal BC income tax rate for individuals (income over $151,050 for 2015) will be back to 14.7% in 2016. The combined federal and provincial top marginal rate is therefore 43.7% in 2016. The rates are reduced from 16.8% and 45.8% in 2015 due to the temporary rate change that was expired at the end of 2015.
It is important to note that the new Federal income tax increase of 4% for personal income that exceeds $200,000 will be in place which brings the top Federal and BC combined marginal tax rate for 2016 to 47.7%.
We recommend that corporations seek advice from their accountant when planning 2016 business activities to ensure maximum tax efficiency. For example, determine whether it is more tax-efficient to pay management fees or payout dividends to shareholders. Also, consider when and how much to payout, etc.
Need advice? Learn more about our tax services and planning for individuals and businesses.
Property Transfer Tax
Starting Feb 17 2016, newly constructed homes valued up to $750,000 will be exempt from property transfer tax, on condition that the purchase is for use as a principal residence.
A partial exemption is available for homes valued between $750,000 and $800,000. Also, the property transfer rate will increase to 3% on the portion of a property’s value that exceeds $2 million.
Moreover, there will be additional amendments to the Property Transfer Tax with respects to owner’s citizenship disclosure requirements to track foreign ownership.
Home Owner Grant
BC Budget announces that for the 2016 tax year, the threshold for the phase-out of the Home owner Grant will increase from $1.1 million to $1.2 million. The purpose of this grant is to reduce the amount of property tax individuals pay if they use the property as their principal residence.
Medical Services Plan Premiums
Starting January 1, 2017, the calculation of MSP premiums will no longer include children. However, premiums for adults will increase to a maximum of $3.00 per month and couples will no longer receive a discount for paying together. Therefore, premium rates for couples will be twice the rate of single adults.
Senior’s Home Renovation Tax Credit
The BC seniors’ Home Renovation Tax Credit will be expanded in 2016 to individuals with disabilities who are also eligible to claim the federal disability tax credit. Eligible expenses incurred after February 16, 2016 will qualify for the expanded credit.
Tax Tips for Families
Family tax cut
If you are married and have children under 18, you may qualify for the Family Tax Cut. Enacted in 2014, this non-refundable tax credit up to $2,000 is based on the net reduction of federal tax payable if up to $50,000 of your taxable income is transferred to your spouse or common-law partner.
Both spouses must file a personal income tax return to be eligible. Although the new federal Liberal government has called to repeal this measure, no legislation has been proposed at this point and this cut will likely be retained.
Children’s Fitness & Arts Expenses
Families with children under 16 years can claim up to $1,000 per year for eligible fitness expenses, as well as $500 per year for eligible art expenses for 2015. In cases where a child qualifies for the disability tax credit and is under 18 years, eligible fitness expenses can be claimed as well as eligible arts expenses up to $1,000.
Moreover, a new Child Fitness Equipment Tax Credit introduced in 2015 provides a non-refundable tax credit equal to 50% of the BC Child Fitness Tax Credit.
Universal Child Care Benefit
Introduced in 2006, the Universal Child Care Benefit (UCCB) is a taxable benefit designed to help families through direct financial support. In early 2015, the UCCB was expanded to include new benefits.
Families currently receive $160 per month for each child under the age of six, and $60 per month for each child aged six through seventeen. Whether you have a two-parent family or you are a single parent, there are specific guidelines that determine whether the UCCB will be subject to income tax.
Contact us to learn more ways your family can save money.
Registered Education Savings Plans (RESP)
Did you know that the RESP lifetime maximum has increased to $50,000 and there is no longer a maximum annual contribution limit?
The Canadian Education Savings Grant (CESG) provides incentive for family and friends to help save for a child’s post-secondary education.
A grant is calculated based on the amount contributed to the RESP and the CESG money is deposited directly into the child’s RESP. If your family income is less than $89,401, you may qualify for additional CESG benefits.
BC families are encouraged to save early for their children’s post-secondary education. The provincial government will grant $1,200 to eligible children through the B.C. Training and Education Savings Grant (BCTESG).
To be eligible, a parent and child must be BC residents, and the child must be born 2007 or later and be the beneficiary of a Registered Education Savings Plan (RESP) with a participating financial institution.
Budget 2016 announced that $39 million will be added to the BCTESG program. An additional 40,000 children born in 2006 can apply for the grant, so it’s expected that families will start applying before the end of 2016.
The BCTESG is now available through various credit unions, BMO branches, and other financial institutions.
For more information visit www.gov.bc.ca/bctesg.
RRSP Deadline
February 29, 2016 is the last day for making RRSP contributions and to deduct the amount on your personal tax return. Determine your 2015 RRSP contribution limit by calculating 18% of your 2014 earnings which normally includes business, net employment and income from rental property income.
Note that there is a $24,930 contribution limit for 2015 plus any unused contribution from previous years. Unused RRSP contribution room can be carried forward indefinitely.
Remember that making contributions as early as possible will help grow your tax-sheltered retirement income funds faster. Find your 2015 contribution limit on your 2014 Notice of Assessment.
Tax Free Savings Account
Canadian residents 18 years or older can contribute up to $10,000 to a TFSA for 2015, but note that this amount will be reduced to $5,500 in 2016. Importantly, you can still carry forward any unused TFSA contribution which will increase your limit. Contributions to a TFSA are not tax deductible, but you can make tax-free withdrawals and investment income earned is tax-free.
Flexibility is a key feature of the TFSA. Unlike an RRSP, you can contribute to and maintain your TFSA throughout your life. Also, if you have more money to invest than your spouse, you can enable him or her to establish a TFSA without being subject to the normal rules of income attribution and tax for income investment, as long as the funds remain in the TFSA.
Personal Tax filing & Tax Payment Deadlines
It’s important to file your return on time to avoid delays. Filing returns after April 30, 2016 may result in GST/HST credits (including any related provincial credits), old age security benefit payments and child tax benefit payments from being issued in a timely manner.
If you were self-employed in 2015, your return must be filed on or before June 15, 2016. Importantly, any balance owing for the previous year must be paid on or before April 30, 2016. Exceptions will be made when due dates fall on a Saturday, Sunday or CRA recognized holiday. Payments must be postmarked on the next business day.
Have questions? Let our team help you prepare for a prosperous 2016. Learn more about our comprehensive tax planning and business accounting services.
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