2016 Tax Season Update

February 26, 2017 - Personal Income Tax

  • RRSP Contribution Deadline Wednesday March 1, 2017.
  • Your RRSP deduction limit shows up on you Notice of Assessment for 2015 taxes filed.
  • Go to CRA’s Online Service: My Account, click on link below to set up for instant access to some of your tax information.

http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/menu-eng.html.

  • Withdrawals from your RRSP are taxed at your marginal tax rate when you file your personal tax return.
  • However, the advantages of an RRSP are the tax deduction for the contribution, and the time value of your investments growing tax-free for several years until retirement, because a dollar saved today is worth more than a dollar saved tomorrow.
  • TFSA Contribution Room.
  • You will accumulate TFSA contribution room for each year even if you do not file an income tax and benefit return or open a TFSA.
  • The annual TFSA dollar limit for the years 2009, 2010, 2011 and 2012 was $5,000.
  • The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.
  • The annual TFSA dollar limit for the year 2015 was $10,000.
  • The annual TFSA dollar limit for the year 2016 was $5,500.
  • The annual TFSA dollar limit for the year 2017 is $5,500.
  • If you haven’t contributed since the inception of the TFSA in 2009, you can contribute an accumulated maximum of $52,000 in 2017.
  • Go to CRA’s My Account which will give you your TFSA Contribution Room, broken down by financial institution if you select that.
  • The advantage of a TFSA is the time value of your investments growing tax-free; however, there is no tax deduction for the contribution like an RRSP.
  • Withdrawals from your TFSA are tax-free, however, when it comes to replacing your withdrawals, you have to wait until the following year if you have already contributed your limit for the year, see example below:

 

Example

 

Since opening her TFSA in 2009, Jenny has contributed the maximum TFSA dollar limit in each year. By the end of 2014, she has accumulated a total of $31,000 in her TFSA account. In 2015 Jenny makes a $10,000 contribution, the TFSA dollar limit for 2015. Later that year, she withdraws $3,000 for a trip. Unfortunately, her plans change and she cannot go. Since Jenny already contributed the maximum to her TFSA earlier in the year, she has no TFSA contribution room left.

 

If Jenny wishes to re-contribute part or all of the $3,000 she withdrew, she will have to wait until the beginning of 2016 to do so. The $3,000 will be added to her TFSA contribution room at the beginning of 2016.'

 

If she re-contributes any of the withdrawn amount before 2016, she will have an excess amount in her TFSA and will be charged a tax equal to 1% of the highest excess TFSA amount for each month that the excess remains in her account.

 

What is New for 2016?

  • New Federal Middle Class Tax Rate Cut and New Federal Top Rate Bracket.
  • For those making between $45,282 and $90,563 their taxes have decreased from 22% to 20.5% in 2016. That’s a maximum tax savings of $679. For those making above $200,000, the new federal top bracket, their taxes have increased from 29% to 33%.
  • New Increase to Donation Credit for Federal Top Rate Bracket Individuals.
  • As a result of the new 33% federal top rate bracket, donations in excess of $200 made by individuals in this bracket will get a federal donation credit that is worth 33 cents in tax savings for every dollar donated to registered charities.
  • New Increase to Guaranteed Income Supplement For Single Low-Income Seniors
  • The guaranteed income supplement benefit for single, low income seniors increased up to $947 annually, starting in July 2016.
  • New Canada Child Benefit
  • The old Canada Child Tax Benefit and the Universal Child Care Benefit (which was taxed) were replaced by the new Canada Child Benefit commencing in July 2016.
  • The Canada Child Benefit will pay the following tax-free amounts:
  • Children under the age of 6 $6,500.
  • Children 6 to 17 $5,400.
  • Disability amount $2,730 (in addition to the above).
  • The above benefits start being reduced when the family net income is over $30,000.
  • Go to CRA’s Child and Family Benefits Calculator, click on link below, to see how much you might get:
  • http://www.cra-arc.gc.ca/bnfts/clcltr/cfbc-eng.html.
  • To qualify for these benefits, both you and your spouse or common-law partner, if you have one, must file a return every year, even if there is no income to report.
  • New Home Accessibility Tax Credit
  • If you are 65 or older, or are disabled, you or your spouse or common law partner can claim up to $10,000 for renovating your home (and land up to 1.24 acres) that you own, to allow you to gain access to or be mobile and functional within your home
  • The federal credit is worth 15% in tax savings of eligible expenses paid, to a maximum of $1,500 (15% x $10,000)
  • New Eligible Educator School Supply Tax Credit
  • If you are a teacher at an elementary or secondary school, or an early childhood educator at a regulated child care facility, you can claim up to $1,000 of school supplies for the purpose of teaching or facilitating students’ learning.
  • The federal credit is worth 15% in tax savings of eligible supplies paid, to a maximum of $150 (15% x $1,000)
  • New Reporting of Sale of Principal Residence
  • The sale of a principal residence must now be reported on your tax return.
  • What is Eliminated or Reduced for 2016?
  • Child Tax Incentives Eliminated
  • The Family Tax Cut for couples with at least one child, or often referred to as income splitting, is eliminated.
  • The Children’s Fitness Credit and Children’s Arts Credits are reduced by 50%, to $500 and $250 respectively in 2016, and will be eliminated in 2017.

 

Notice to Reader

 

Dean Constand CPA publishes this blog for information purposes only. Feel free to distribute to colleagues and friends. Although the material has been carefully prepared, it is not a substitute for professional advice.