Tax changes are coming. You likely won’t notice it right away, but once the clock strikes twelve on January 1, 2016 many things will be different. The Liberal party welcomes the New Year with the following tax changes:
1. Higher taxes for high income earners
- 4% increase in the federal tax rate from 29% to 33% on individuals for income over $200,000.
- As a result of this increase, the maximum personal tax rate (combined Federal and Ontario) in 2016 for those with incomes over $200,000 will be as follows:
o Ordinary income (salary, interest): 53.53%
o Eligible dividends (from most public companies): 39.34%
o Non-eligible dividends (from most PC/HSC/TSC):
2. Lower taxes for the middle class
- 1.5% decrease in the federal tax rate from 22% to 20.5% on individuals with income more than $45,283 and less than $90,564. This will result in tax savings of up to $679. Even if your income is higher than $90,564, you will still benefit from this tax decrease on this portion (income between $45,283 and $90,564) of your income.
3. Removal of income splitting tax credit
- The family tax cut credit will no longer be available. This credit previously allowed some families to save up to $2,000 by splitting income between spouses. This take away isn’t a big deal for many dentists who had/have a PC as they can use the PC to income split with poorer family members.
4. Tax Free Savings Accounts (TFSA)
- Annual contribution limit to a TFSA will be reduced from $10,000 to $5,500 for 2016 and indexed to inflation thereafter. The new limit is the same as it was in 2014. Note, there is no rush to contribute to TFSA as the TFSA contribution limits prior to 2016 have not changed. Only the contribution limits after 2015 have been reduced.
To continue reading, please visit: http://dcy.ca/prepare-yourself-for-the-new-years-tax-hangover-2/