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October 26, 2015
by David Chong Yen, CPA, CA, CFP, Eugene Chu, MAcc, CPA, CA, Louise Wong, CPA, CA, TEP of DCY Professional Corporation Chartered Accountants
A changing of government usually signals some significant changes. Here are the top seven expected tax changes that may affect you:
1. Tax Free Savings Accounts (TFSA)
As of January 1, 2015, the limit for annual TFSA contributions was $10,000 per year. This will likely be reversed back to $5,500 per year. For taxpayers who save and invest, this is bad news as more investment income will be taxed. This may affect retirement planning as withdrawals from a TFSA did not affect Old Age Security (OAS) benefits. More investment income outside a TFSA could trigger claw back of OAS benefits. We suggest dentists who can afford to make the $41,000 TFSA contribution to do so A.S.A.P., if they have not yet contributed to their TFSA’s.
2. Lifetime Capital gains exemption (LCGE)
None of the political parties addressed the LCGE. It appears it will remain unchanged for the time being, but for how long it
remains unchanged is anyone’s guess. If you are concerned that the government will eliminate the LCGE, you may consider a tax maneuver to claim the LCGE now while still owning your PC/HSC/practice. This way, regardless of the government changes to the LCGE, you would have realized your tax savings of more than $200,000 for each LCGE claimed.
3. Higher taxes for high income earners
For dentists earning $200,000 or more personally, be prepared for a larger tax bill. The government is poised to increase tax rates for those in the high income tax brackets. A new 33 per cent federal tax rate (previously 29%) for income above $200,000 means a combined marginal tax rate of more than 50% for those in Ontario. You will want to monitor your annual salary and dividends and consider using poorer family members who are shareholders of your Professional Corporation (PC), Technical Service Corporation (TSC) and/or Hygiene Service Corporation (HSC) in the tax savings game.
4. New middle income tax credit
Not all the tax changes are bad news. Tax rates for individuals with incomes between $44,700 and $89,401 will be lowered from 22 per cent to 20.5 per cent. This would result in a tax savings of up to $670 per year. Using a PC, HSC and/or TSC and poorer family members in the tax savings game becomes even more important. With the new high income tax rate and lower middle income tax rate, it is much better to have multiple middle income family members receive income rather than one high income member where possible.
5. Income splitting tax credit
The Family Tax Cut credit which was introduced in 2015 to save families’ up to $2,000 per year will likely see an early goodbye. For dentists who had already involved their spouses in the tax savings game, this will not be a major loss. In many cases, if the family’s taxes were already optimized, you likely did not receive any benefits from the Family Tax Cut credit.
6. Family with children
Expect the $160 and $60 monthly cheques for the Universal Child Care Benefit to be ending soon. Instead they will be replaced with tax-free cheques of up to $2,500 per year for those families that qualify. Dentists with a household income of more than $200,000 will not qualify.
The age to qualify to receive OAS benefits will likely revert back to 65 instead of being gradually raised to 67. For many, this change had little impact as the age was set to rise beginning in 2023. A lot could still change between now and 2023.
This article was prepared by David Chong Yen, CPA, CA, CFP, Eugene Chu, MAcc, CPA, CA and Louise Wong, CPA, CA, TEP of DCY Professional Corporation Chartered Accountants who are tax specialists and have been advising dentists for decades. Additional information can be obtained by phone (416) 510-8888, fax (416) 510-2699, or e-mail firstname.lastname@example.org / email@example.com /firstname.lastname@example.org. Visit our website at www.dcy.ca. This article is intended to present tax saving and planning ideas, and is not intended to replace professional advice.