Because Justin Trudeau’s Liberals were elected with a clear majority in the House of Commons on October 19, 2015, they have the ability to pass any legislation they wish (subject to approval by the Senate).
In their election platform, the Liberals proposed a number of specific tax changes. We can expect to see at least some of these introduced in Parliament in the new government’s first Budget, likely early in 2016.
- Reducing the 22% “middle income” bracket (on taxable income from $44,702 to $89,401 in 2015, increased by inflation for 2016) to 20.5%, to give a break to the “middle class”.
- Adding a new tax bracket of 33% federal tax (increased from 29%) on taxable income over $200,000, to force the “wealthy” to pay top tax rates well over 50% in most provinces.
- Rolling back the Tax-Free Savings Account (TFSA) annual cumulative contribution limit from $10,000 to $5,500. It is not known whether taxpayers who have contributed the additional $4,500 for 2015 will have to count that towards their 2016 contribution room or whether the $10,000 limit for 2015 will remain. It is also not known whether the indexing of the credit to inflation (rounded to the nearest $500), which was eliminated by the Conservatives with the increase to $10,000 in 2015, will be reinstated.
- Repealing the “Family Tax Cut” income splitting for families with children, introduced by the Harper government in 2014. (Pension income splitting will not be cancelled.)
- Replacing the Universal Child Care Benefit, as well as the Canada Child Tax Benefit and the National Child Benefit Supplement, with a new “Canada Child Benefit” that is income-tested, and thus not available to high-income taxpayers.
- Some form of cap on use of the $500,000 annual small business deduction by corporations owned by high-income earners. Perhaps this will take the form of the rule Quebec recently introduced, requiring a company to have more than 3 full-time employees to qualify for the credit. (The scheduled reduction in the small business corporate rate from 11% to 9% by applying the small business deduction will not be changed.)
- Limiting the stock option deduction to $100,000 in annual stock option gains, to reduce the tax savings available to very high income employees.
- Limiting the Canadian Exploration Expense deduction so that it can be used “only in cases of unsuccessful exploration”.
- Increasing the Northern Canada deduction from $16.50 per day to $22 per day, and indexing it to inflation for future years.
- Repealing the education tax credit and the textbook tax credit for university and college students. The savings will be used to provide more grants to students who need support for education. (The tuition credit, for tuition actually paid, will not be affected.)
- Reinstatement of the labour-sponsored funds tax credit, which was being phased out from 2015-2017.
- A new Teacher School Supplies Credit, of 15% of up to $1,000 spent by teachers from their own funds on supplies for their students.
- The Home Buyer’s Plan, which permits first-time buyers to withdraw RRSP fund to buy a home (and repay the funds to the RRSP over 15 years) will be extended “to allow Canadians impacted by sudden and significant life changes to buy a house without tax penalty. This will ease the burden on Canadians facing elderly family member.”
- Bill C-377 (section 149.01 of the Income Tax Act), which requires labour unions to disclose extensive financial information to the CRA beginning in 2017 and requires the CRA to make that information public, will be repealed.
- The rules restricting charities from engaging in “political” activities will be relaxed.
- The CRA will
- “offer to complete returns for some clients, particularly lower-income Canadians and those on fixed incomes whose financial situation is unchanged year-to-year;
- support more Canadians who wish to file taxes using no paper forms; and
- deliver correspondence that is straight forward and easy to read.”
- An additional $80 million will be invested to help the CRA “crack down on tax evaders”.
- The government “will enhance existing tax measures to generate more clean technology investments, and work with the provinces and territories to make Canada the world’s most competitive tax jurisdiction for investments in the research, development, and manufacturing of clean technology.”
As well, it would not be surprising to see the Liberals cancel some of the Harper government’s tax credits, such as the children’s fitness tax credit and children’s arts tax credit. The Liberals are definitely focused on tax measures that will benefit the “middle class” rather than the “wealthy”.