Families

Find out how the 2016 tax changes impact you in minutes

One of my posts last year focused on the tax changes the federal government introduced for 2016. The changes impact almost everyone especially high earners with children.
But what do all these changes mean for your bottom line?
You can find out in a matter of minutes. The Office of Parliamentary Budget Officer has introduced a tool that lets taxpayers know not just their net tax difference compared to 2015 but also the exact measures that affect your overall taxes.
Take a minute to answers a few questions and find out whether you are better or worse off with 2016 tax changes:

Budget 2016: Tax Tool Calculator

 

Canada Child Benefit

Starting July 2016 Universal Child Care Benefit (UCCB), Canada Child Tax Benefit (CCTB), and National Child Benefit Supplement (NCBS) will be replaced with the Canada Child Benefit (CCB). The new CCB will provide a maximum benefit of $6,400 per child under 6 and $5,400 per child aged 6 through 17.
The benefit will be reduced when adjusted family net income is over $30,000.  The rates of reduction will vary depending on the number of children, and when adjusted family net income is over $65,000. Entitlement to the CCB for July 2016 to June 2017 will be based on adjusted family net income for the 2015 taxation year.  According to the reduction rates once adjusted family net income reaches approximately $107,050, the benefit is reduced to zero.

 

Canada Child Benefit Phase-out Rates and Adjusted Family Net Income Thresholds
Number of children (for phase-out rates) Phase-Out Rates (%)
$30,000 to $65,000 Over $65,000
1 child 7 3.2
2 children 13.5 5.7
3 children 19 8
4 or more children 23 9.5

 

 

For your estimated benefits see the Canada Child Benefit Calculator

 

 

2016 Tax changes

Below is a summary of some of the changes between your 2015 and 2016 tax returns. I have discussed some of the important changes in more depth in supplementary articles:
Federal changes:

  • Four of the child tax credits (arts, fitness, education and textbooks) have been eliminated
  • Tax on income between $ 45,282 and $ 90,563 decreases from 22% to 20.5%
  • Tax on income over $200,000 rises from 29% to 33%
  • Family Tax Cut, which allowed couples with children under 18 to transfer up to $ 50,000 to the lower-income-spouse has been eliminated
  • Universal Child Care Benefit (UCCB) will be replaced with the Canada Child Benefit (CCB) beginning in July 2016
  • The TFSA annual limit will be drop from $10,000 to $5,500 for 2016
  • A slight increase in EI and CPP taxes due to the difference between inflation and wage growth
  • The basic personal amount and some other credits will increase by 1.4% for 2017
  • Introduction of teacher and Early Childhood Educator School Supply Tax Credit

Ontario changes:

  • Ontario will double the first-time homebuyers’ maximum land transfer tax refund to $4,000
  • Ontarians will receive a rebate of 8% on rising hydro bills

Child Care (benefits, deductions, and credits)

In order to assists parents with the costs of raising children, the federal and provincial governments offer a series of benefits, tax deductions, and tax credits for specific expenses. Some of these benefits such as the Universal Child Care Benefit are provided to families regardless of their income; others are targeted for low and middle income families.

Canada Child Tax Benefit and Universal Child Care Benefit

The Canada Child Tax Benefit is a non-taxable allowance paid to low and middle income families for each child under the age of 18 with whom the parent(s) live and for whom they provide car. The amount is calculated based on the parents’ income for the preceding year.

The federal government also provides an allowance of $100 per month for each child under the age of six which constitutes a taxable benefit (is considered income) and is taxed on the lower-income parent’s hands. Separated parents who share custody of a child may elect to receive half on the UCCB. For new born children or for children under six for whom you have not applied for UCCB, you must complete an application in order to start receiving the benefits. For more information please visit  http://www.cra-arc.gc.ca/bnfts/cctb/fq_qlfyng-eng.html.

One of the parents of children under 18 also receives a non-refundable tax credit for each child under 18. You can reduce your family’s total tax bill by depositing the UCC and CTB amounts in your children’s bank accounts. By doing so, the benefits will be taxed on the children’s hands who in most case are in a lower tax bracket.
Child care expenses

Expenses paid for child care such as day-care, boarding school, or a day camp for children under 16 are tax deductible if their purpose is to enable you or your spouse to work, go to school, or perform research. These expenses include babysitting costs if performed by someone unrelated to you; you must however ask for a receipt and the sitter’s Social Insurance Number in case you are audited. The maximum deductible expense is the lowest of $ 7000, 2/3 of your earned income, and the actual child-care expenses incurred in any year. The $ 7000 limit is reduced to $4000 for children above the age of six and increased to $10,000 for disabled children.  Typically the deduction is claimed by the lower-income spouse.

Children’s Fitness and Arts Credits

A non-refundable credit of up to $500 paid for enrolling each child under 16 in a physical activity program taking place at least once a week for a minimum of 8 weeks. Similarly parents may claim a Children’s Art Tax Credit for enrolling each of their children in a qualifying art, cultural, or recreational activities program.

Adoption expenses

Some of the adoption, travel, translation fees, and living expenses incurred will receive a tax credit up to $ 15000 Federally and $ 11,797 in Ontario.

Child and Spousal Support Payments

If the child support payments were ordered by a court or are in accordance to a written agreement after April 30, 1997 they are not tax deductible for the payer and are not included in the recipient’s income (not taxable). If the payments are not in accordance with a court order or a written agreement, they are deductible for the payer and taxable for the recipient.
On the other hand, court ordered spousal support payments (after April 30, 1997) are deductible for the payer and taxable for the recipient.
Since child support payments are not generally deductible and spousal support payments are, you should negotiate the separation agreement so that it differentiates between the spousal and child payments; in the absence of such arrangements, all payments will be considered child support and not deductible.
Registered Education savings plan:

Parents can contribute to a trustee plan in order to fund their own or their children’s post-secondary education. The contributions, unlike RRSPs, are not deductible expenses; however the income generated inside the plan is tax-free until it is paid to the student. Unlike RRSP there is no contribution limit but contributions are capped at $ 50,000. Another benefit of such a plan is the Canada Education Savings Grant which is paid by the federal government to each child who is a beneficiary of an RESP. The grant amount is $500 or 20% of the first $2,500 contributed annually from the day the child is born until their 17th birthday up to a cumulative maximum of $ 7,200. Low and middle-income families may be eligible for additional grants. For more information, please visit: http://www.hrsdc.gc.ca/eng/jobs/student/savings/index.shtml.