Happy New Year! Hope the year is a good one for you and your family.
There were many changes announced near the end of the year by the new federal government. I’ll review some changes to the personal income tax rates, the TFSA contribution room and the new Canada Child Benefit. I’ll finish up with why you may want to review your TD1; I’ll explain more what that is.
First, the middle tax bracket, income from $45,000 to 90,000, was reduced by 1.5%. This is a minor change for those who are in that tax bracket. Even If you earn $90,000, your taxes are reduced only by $675 for the year. Although this is considered a tax break for the middle class, I don’t think too many of you will notice much of a change even if you are in that tax bracket.
Those few taxpayers earning more than $200,000 will see the taxes on the amounts over $200,000 increased by 4%. Haven’t met too many people in that tax bracket.
The Family Tax Cut will continue for 2015 only. This credit was introduced for the 2014 tax year and is available to spouses with children under the age of 18. If the spouses are in two different federal tax brackets, you will save on your federal taxes, up to $2,000.
The Tax Free Savings Account limit for 2016 is $5,500; now the total contribution amount has been increased to $46,500. If you are not sure how much you have contributed, you can check with Canada Revenue Agency, or with your authorization, I can check on line for you.
The new Canada Child Benefit will replace the Universal Child Care Benefit and the Child Tax Credit effective July 2016. The benefit will be completely based on family net income. The maximum benefit is about $6,400 per year per child to be paid monthly. If your combined family income is under $30,000 you will be eligible for the maximum monthly benefit, which is slightly more than what you have been receiving up to now. And the amount you receive is not taxable.
Compared to the previous benefits, if your combined family income is $45,000, you will receive about $2,000 more per child per year. If your income is $90,000, you will receive about $1,000 more per child per year. Families with income more than $150,000 will receive no benefit. Personally I’m in agreement with this change. These benefits should be income tested so those with higher incomes do indeed receive less. And those with lower incomes will definitely see an increase in the monthly benefit.
The last item I wanted to review with you is the TD1. This form is used by your employer or pension plan to determine how much tax to have deducted from your income. So why should you care about it?
First, individuals with multiple jobs during the year should have a TD1 completed for the second and every additional employer and reduce the credits to zero. This will minimize your chances of having to pay taxes each April. (Your multiple employers will otherwise all claim your full credits.)
And those who are in retirement, keep in mind you likely have income from more than one source (pension, retirement savings, CPP, OAS and investment income), so you likely need to have some extra tax deducted from at least one of them. Either get a new TD1 to your pension payer, or contact Service Canada to have some additional tax deducted from your CPP or OAS. Or use the TD1 just to have more tax withheld from your pension payments.
On the flip side, if you start claiming more credits like the Disability Tax Credit, you can use the TD1 to reduce the amount of tax deducted to improve your monthly cash flow and not have to wait until you file your taxes to get some of your own money back in the form of a tax refund.
If you previously were claiming the spousal credit and now your spouse is working, you need to have your TD1 updated otherwise you may end up owing quite a bit in taxes when you file your annual tax return. Or if you are separated and claiming the eligible dependent for one of your children, ensure the TD1 with your employer reflects this so you have less tax deducted and more cash flow each pay cheque.
As always if you have any questions about the above or any other tax questions, please contact our office. We will start filing 2015 taxes when CRA opens February 15 2016.
Anni Markmann is a Tax Professional, a Certified Financial Planner, and a Certified Professional Consultant on Aging living, working, and volunteering in our community. Contact the Ste Anne Tax Service office at 204.422.6631, firstname.lastname@example.org or 36 Dawson Road in Ste Anne.