Overview of personal tax changes in 2016 and 2017

Fine is a tax for doing wrong….Tax is a fine for doing well (anonymous)

Personal tax changes 2016 and 2017

Preparing your annual tax returns is always considered a tedious task, however knowing the changes is very crucial and allows you to be proactive for the upcoming year. Following the election of the Liberal government the proposed 2016 Budget brought about several tax changes, some which have come into effect during 2016 and others are coming into effect starting from January 1, 2017. This digest sheds light on main changes (not all changes) and how they may affect your personal tax returns.

Changes in Child Care Benefit and Deductions.

As of 2016, the Universal Child Care Benefit (UCCB) has been replaced with the Canada Child Benefit (CCB) however, the UCCB can still be claimed for previous years. The Canada Child Benefit allows for tax-free benefits to families with children under the age of 18 depending on the adjusted family net income. This benefit will provide up to $6,400 annually for each child under the age of six and up to $5,400 for each child between the ages of six and 17. Notability, the child, cannot have income above the basic credit, or he or she will not qualify as a child requiring care. The benefit is reduced for families with a net income of over $30,000 and ceases to apply for families earning over $200,000. In 2016 the annual child care expense limit for a child under the age of six is $8,000, for a child between the ages of six and 17 and an infirmed child over the age of 16 the limit is $5,000. If the child is disabled, of any age, and also eligible for the disability tax credit, the limit is $11,000 for expenses such as daily day care.

Child Fitness and Arts Tax Credits

For 2017 and subsequent years, the child fitness and art credits will be eliminated. For those families claiming for the year 2016, the child fitness fees have been reduced from $1,000 to $500 per child.

Family Tax Cut

The federal government in its Budget 2016 aims to eliminate the already capped tax credit for income splitting to $2,000. This was a tax reduction measure that allowed an individual to transfer up to $50,000 of income to a spouse with lower income if they had a child under the age of 18.

Elimination of the Student Education and textbook tax credits

Before 2016 students had the costs of textbooks and supplies supported by the federal government with a textbook tax credit for $65 per month for full time and $20 for part-time students. In 2016 students enrolled in a designated learning institution can claim $465 per month if full time and $140 per month if enrolled part-time, the federal government have decided to scrap these tax credits effective of January 1, 2017, as they are not based on income. Nonetheless, prior year tax credits can still be carried forward to 2017 and subsequent years and are transferable to a spouse or parent.

Declaration of sale on principle residence

In aims to reduce the misuse of the principal residence exemption (PRE) which allowed the exemption of any capital gain acquired from the sale of any property considered a principal residence, the federal government from 2016 has declared that all dispositions on sale of principal residence must be recorded and all basic information retaining to the sale must be provided.

Reduced waiting period for Employment Insurance (EI) payout

The two-week waiting period for EI benefits, including special benefits for maternity or disability leave, start paying out will be reduced to one week starting January 1, 2017. Self-employed workers opted in for EI now require to earn a minimum of $6,888 in 2017 from $6,820 in 2016 if they wish to draw out.

Changes to Life insurance policies

Effective January 1, 2017, the tax treatment of life insurance policies will be less favorable as new policyholders will see a decrease in their ability to build up investment gains above death benefit premiums on a tax-free basis. This will reduce death benefits and notably make the policies more expensive.

Northern Residents Deductions

An individual who lives for at least a continuous six months in a prescribed region of Canada is allowed a deduction; the deduction is to provide relief for the higher cost of living in these areas. For 2016 and subsequent taxation years, Budget 2016 proposes to increase both the basic and additional residency amounts from $8.25 to $11 per day for the purposes of calculating the northern resident’s deduction.

Home Accessibility expenses

Individuals who are aged 65 years plus OR qualify for the disability tax credit who live independently at home are eligible for up to $10,000 of the qualifying expenditures. These can also be claimed by a spouse or a person who can claim the above person as an eligible dependent, caregiver or infirm dependent. Qualifying expenditures must either allow better access, mobility or functionality in the dwelling or reduce the risk of harm to the eligible individual and must also be a permanent part of the dwelling

Elimination of Capital Expenditure Cost (CEC)

Under the Budget 2016 proposal, the cost of property acquired on or after January 1, 2017, that would previously have been added to CEC (i.e. Goodwill) at a 75% inclusion rate will now be added to new Class 14.1 (for a depreciable capital property) at a 100% inclusion rate. The CCA depreciation rate for this new class will be 5% on a declining balance basis (instead of at the current rate of 7%). Class 14.1 will follow all the rules generally applicable to other CCA classes—for example, recapture, capital gains and depreciation.