A few of the changes made in the 2016 Federal Budget
September 26, 2016 by Dave
Filed under Federal Government, Income Tax, Retirement Planning
Budget measure: Corporate Class Mutual Funds
This topic is covered extensively in a separate post.
Budget measure: Increasing Tax Rates
The Federal and Ontario governments have both been raising tax rates at certain levels by adding new, higher tax brackets while sometimes slightly lowering other brackets. This adds to the complexity of tax planning and generally discourages Canadians from earning additional income, especially those who are the most productive Canadians. Note that the numbers below are combined Federal and Ontario rates and are only the basic income tax thresholds. There are many other government measures that have clawbacks built into them that reduce credits or benefits at different income thresholds.
Budget measure: Families with young children
The Budget proposes to eliminate several programs and replace them with a single social program that is clawed back at defined income thresholds of $30,000 and $65,000. The Universal Child Care Benefit, the Canada Child Tax Credit, the Family Tax Cut, the Child Fitness Credit and the Child Arts Credit are all to be eliminated and replaced with the Canada Child Benefit. Since all such programs consist of first taxing Canadians then creating programs to return money to Canadians using complicated systems and expensive departments to administer them, simpler programs are generally less harmful. Only time will tell if this change last for more than a few years before it is altered again.
Budget measure: Changing the age of qualification for Old Age Security (OAS) payments
Just a few years ago the age of qualification for OAS was changed so that it would gradually move up from 65 to 67. It is important to note that the OAS began in 1951, was for Canadians aged 70 and older and had an income tested amount for ages 65 to 69. In 1968 the basic OAS age was lowered to 65. At that time, the average Canadian lived only about five to seven years after age 65, whereas today we live 15 to 20 years after age 65, so the duration of OAS payouts has tripled. Further, the ratio of workers to retirees has shifted dramatically as the baby boom ended and the average age of Canadians has increased. I believe increasing the age of OAS qualification was sensible and long overdue and that it will eventually need to be increased, but for now it has been moved back to age 65.