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Is Your Tax Burden Increasing?

How will the change of government impact tax burdens? Will the changes be major? It is difficult to answer this question before the new Minister of Finance has tabled his first budget. However, the Liberal election platform allows us to predict its general direction.

Change in Personal Income Tax Rate

According to the Liberal electoral platform, taxpayers residing in Quebec who earn between $44,700 and $89,401 per year will benefit from a reduction in their tax rate of 1.26%. The maximum amount of the resulting savings is $560.

The burden on taxpayers earning over $200,000 per year increases. A tax rate increase of 3.34% is expected for income exceeding this amount.

For shareholders of a private company with fewer than four employees, the marginal tax rate at which a dividend will be subject will be over 55% starting in 2017, as shown in the following table:

 2013*201520162017201820192020
Dividend 50.22% 51.23% 54.38% 56.61% 56.52% 56.40% 55.73%
Salary 49.97% 49.97% 53.31% 53.31% 53.31% 53.31% 53.31%
Spread 0.25% 1.26% 1.08% 3.31% 3.21% 3.09% 2.42%

*Data for 2014 is the same as for 2013.

With dividends now taxed at a higher rate, it is very likely that some should review their past choices regarding their earnings.

Continued Reductions in Corporate Tax Rates

The previous government announced tax cuts for "small companies". Federally, the rate at which their profits will be subject to is 10.5% in 2016, 10% in 2017, 9.5% in 2018 and 9% thereafter. According to announcements made by the new government during the last campaign, these rate cuts will continue.

Other Measures

The election platform provides for other tax changes:

  • Starting in 2016, income splitting will be abolished for couples who have minor children. Previously, a family could split up to $50,000 in salaried income and realize significant tax savings.
  • Contributions to TFSAs will be reduced. The previous government increased the maximum to $10,000. During the last election campaign. The Liberal Party announced that the ceiling would be lowered to $5,500.
  • We will carry out a major review of tax expenditures and tax loopholes enjoyed by certain taxpayers which will be eliminated. The review will notably cover the following:
    • The tax treatment of stock options will be reviewed so that all of the tax benefit is added to a taxpayer's employment income. At present, only 50% of this benefit must be added when certain criteria are met. An exception would be provided for innovative companies.
    • Splitting strategies will be reviewed, particularly for corporate shareholders. At this time, however, it is impossible to determine the impact of this change on the tax treatment of trusts and corporations.
    • Companies involved in mineral, oil and gas exploration can now transfer their allowances to their shareholders. In the future, this option would be limited to companies with exploration projects that have not been successful.
    • Tax credits for studies and the purchase of textbooks will be abolished in favour of scholarships. These credits could be transferred to parents regardless of income, unlike grants, which take account of parental income.

Conclusion

We now know that Bill Morneau is our new Minister of Finance. The first budget filing of this new government will be a landmark event for some, notably due to an increase in their tax burden. We will soon know all of the new measures, and taxpayers will be able determine the impact these changes will have on their personal finances.

The author

Patric Saint-Onge

Patric Saint-Onge

CPA, CA, LL.M.Fisc., TEP, Tax Specialist.
Patric Saint-Onge has been a tax specialist for over 15 years. In 2002, he co-founded the firm Corriveau Saint-Onge Inc. which specializes in Canadian taxation.

Mr. Saint-Onge has worked on major tax cases, applying complex fiscal concepts throughout his career.

He has also been a speaker on numerous occasions for both industry professionals as well as the general public. Among others, the Institute of Chartered Accountants of Quebec has requested his services as a speaker. He has also been invited as an expert in taxation on several television and radio shows, and frequently collaborates with journalists covering the economy to help with articles on various topics.