Canadians urged to review 2016 finances after changes to tax rates, TFSA limit

OTTAWA -- The tax rules are changing in 2016 and even if Canadians don't make enough to be hit by the new top federal income tax rate, their financial plans are going to need to be reviewed.

See Full Article

The vast majority of Canadians will not be affected by the new tax bracket for income over $200,000 a year, but everyone will see their tax-free savings account contribution limit be reduced back to $5,500 for 2016.

Combined with the new lower tax rate for income between $45,282 and $90,563, even those who aren't in the top one per cent of income-earners should take a look at their finances to ensure they're on track.

Peter Bowen, vice-president of tax and retirement research and solutions at Fidelity Investments, says for many people this might be the most important tax planning season they've ever had.

"With the changes just implemented both to tax rates and TFSAs, everybody needs to take care to make sure their tax planning is right for their own situation," he said. "We always encourage people to get financial advice, but with these changes in place, it is more important than ever."

What you need to do depends on your tax bracket -- and with the wider range of brackets now, that means planning is more complex.

For those in the bracket that is seeing the rate cut, Bowen says to be sure to claim the deduction against your 2015 income to maximize its value if you're planning on making an RRSP contribution. However, those who make more than $200,000 may want to delay claiming their RRSP contributions until 2016 due to the higher rate set to take affect.

EY tax partner David Steinberg says those making more than $200,000 may also want to look to maximize their 2015 income by crystallizing any capital gains or taking any bonuses or deferred income that may be due before the new higher tax rate kicks in.

"I think you're going to see a lot of people managing taxable income," he said.

Bowen also advises Canadians to carefully consider their future financial needs when weighing TFSA and RRSP contributions.

How much will you be making throughout your career, what stage are you at in your career and where will you be in retirement? Those are all matters to ponder, he said.

"These are the questions that people need to be prepared to at least think about because then that decision of using an RRSP or using a TFSA becomes more important," Bowen said.

The benefit of an RRSP is that you deduct contributions today and defer taxes until your retirement, when you will likely be earning less money and may be in a lower tax bracket.

In contrast, TFSA contributions don't generate a tax deduction, but any investment income you earn with the money isn't taxed. So, if you think you're going to be in the same or higher tax bracket, putting money into a TFSA might make more sense.

Bowen noted it isn't just high-income earners that will be hurt by the lower TFSA limits. Retirees looking to shelter a portion of their nest egg from tax will also be affected by the lower contribution limit even though they may fall into the low-income category.

"They don't have to be wealthy to benefit from TFSAs," he said.

The tax changes and TFSA rollback were part of the Liberal campaign platform during the federal election.

The cut to the second tax bracket will save Canadians making less than $200,000 up to $679 per person.

In addition to the rate changes, the Liberals ended the controversial income-splitting scheme for families plan put in place by the Conservatives that will see taxes rise for families where one parent earns significantly more than the other.

And more changes are expected.

The Liberals have promised a child benefit program to replace the universal child care benefit starting in July 2016.

The plan, promised during the election, will see more generous benefits for poor families and the amount reduced as family income rises, and will be entirely eliminated for high-income earners.



Advertisements

Latest Economic News

  • Ransomware is infecting computers all across Europe in another major attack

    Economic CBC News
    A major ransomware attack on Tuesday hit computers at Russia's biggest oil company, the country's banks, Ukraine's international airport as well as global shipping firm A.P. Moller-Maersk. Moscow-based cybersecurity firm Group IB said hackers had exploited code developed by the U.S. Source
  • World's first ATM turns to gold on 50th birthday

    Economic CBC News
    Five decades since it heralded a transformation in the way people obtained and used cash, the world's first ATM was turned into gold for celebrations of its fiftieth anniversary. The brainchild of Scottish inventor John Shepherd-Barron, the first ATM (automated teller machine) was opened on June 27, 1967 at a branch of Barclays bank in Enfield, north London, the first of six cash dispensers commissioned by the bank. Source
  • Bring the brew to you: Beer Store launches home delivery in Ottawa, Scarborough

    Economic CTV News
    TORONTO - The Beer Store is now offering home delivery in two Ontario communities. Customers in Ottawa and the Toronto suburb of Scarborough can now place an order online and have their purchases delivered within two hours. Source
  • Uber makes it easier to arrange trips for other riders

    Economic CTV News
    SAN FRANCISCO -- Uber's ride-hailing app is making it easier for its users to set up trips for seniors and others who may not know their way around a smartphone but still need help getting around town. Source
  • No security risks in Chinese takeover of Canadian satellite firm: Trudeau

    Economic CBC News
    ?Prime Minister Justin Trudeau is making his strongest defence yet of his government's decision to allow a Chinese telecom giant to take over a Canadian satellite technology company. Trudeau says an initial government review of the takeover, required under federal law, unearthed no significant national security risk and didn't require any further reviews, allowing the deal to be allowed to proceed. Source
  • 'Trump' dumped: Toronto condo and hotel tower to ditch Trump name

    Economic CBC News
    The new owners of the Trump International Hotel and Tower Toronto have reached a deal that will see the Trump name removed from the property. JCF Capital says it has reached an agreement with Trump Hotels to buy out the management contracts for the property for an undisclosed amount. Source
  • Trudeau says no security risks in Chinese takeover of Canadian satellite firm

    Economic CTV News
    OTTAWA -- Prime Minister Justin Trudeau sought to assuage public fears and political complaints Tuesday that the Liberal government's decision to allow the Chinese takeover of a Canadian satellite technology company would compromise national security at home and abroad. Source
  • Trump Organization to check out from Toronto hotel, condo tower

    Economic CTV News
    The entrance to the Trump International Hotel and Tower is shown in Toronto, Wednesday, Dec.9, 2015. (THE CANADIAN PRESS / Graeme Roy) Source
  • Trump name to be dropped from Toronto hotel, condo tower under new deal

    Economic CTV News
    TORONTO -- The new owner of Toronto's Trump International Hotel and Tower has struck a deal that will see the U.S. president's name removed from the property. JCF Capital says it has reached an agreement with a unit of the Trump Organization to buy out the management contracts for the property for an undisclosed amount. Source
  • Draghi: ECB will be cautious in adjusting stimulus effort

    Economic CTV News
    FRANKFURT -- European Central Bank head Mario Draghi says the bank's stimulus efforts need to be "persistent" even as the economy recovers and that any scaling back of support will come gradually. Draghi's said in a speech Tuesday at an ECB conference in Sintra, Portugal, that "there are strong grounds for prudence" in adjusting the level of stimulus and that any withdrawal of stimulus "will have to be made gradually. Source