The Liberals are forming the next Canadian government, with newly-minted Prime Minister designate Justin Trudeau to announce his cabinet on November 4th. It’s a time of great anticipation as Canadians are waiting to see how the new leadership will move forward with the bold economic changes promised during the Liberals’ campaign.
Will there be big changes for your household finances? We’ve gone over the major money promises made by the now-majority government, and how they could play out .
A Change to Income Tax Rates
One of the biggest changes will be how much income tax Canadians pay, particularly those who make less than $89,401 and those who make more than $200,000.
The middle income-tax bracket rate will drop from 22 per cent to 20.5 per cent, and the Liberals claim those with a taxable income between $44,700 and $89,401 will save as much as $670 per year on their income taxes under their so-called middle cut tax plan. However, the opposite will be true for those in a higher income bracket.
Those making $200,000 or more will now be subjected to a new federal tax bracket of 33 per cent – though it’s important to remember this new tax bracket is only on money earned after you cross the $200,000 threshold. For example, if you make $300,000, the extra income tax you will pay is $3,330.
Changes to Child Benefits
The Liberal Government has pledged to scrap the Universal Child Care Benefit (UCCB), which is currently available to anyone with children under 18. The benefit pays out $60 for families with children between the ages of six and 17, and $160 for families with children up to the age of five; even a billionaire family with kids under 18 is eligible.
Trudeau’s party will introduce a new Canada Child Benefit that they say will give families with a household income of less than $200,000 with children under 18 on average $2,500 in tax-free money. If you want to know what your family is eligible for under the new plan, the Liberals have created a calculator you can use to see how much tax-free money you will get. As an example, I put in a household income of $50,000 and two kids under six, and found they would get a benefit of $10,500 a year tax-free.
Cutting Back on Tax-Free Savings Account Limits
In last year’s budget, the Conservative government increased the contribution limit on the Tax Free Saving Account (TFSA) to $10,000 from $5,500. At the time many, including me, criticized the change, saying who has $10,000 hanging around to save every year?! At the time, Trudeau stated his government would retract the increase.
But it turns out, Canadians like the increase in the TFSA. A recent Angus Reid survey recently found that 67 per cent of Canadians aren’t in favour of any political party reversing the increase. There’s even a petition in circulation (and here) to convince the government to leave the TFSA limit as is.
A Retirement Boost
The TFSA has also been touted as an excellent option for those in a lower income bracket to save for retirement. However, there is some good news for those entering their retirement years; the Liberals will leave the age of eligibility for Old Age Security and the Guaranteed Income supplement at 65 rather than the proposed increased to 67 in addition to plans to enhance the Canada and Quebec Pension plan.
A Few Tax Tidbits
No more income splitting: Canadians will no longer be able to take advantage of income splitting or the Family Tax Cut. This was for families who had children under 18. In this case, the higher earning spouse could transfer a maximum of $50,000 to the lower earner in an effort to reduce their income tax.
An improvement to student loans: Good news for students; new grants up to $3,000 will be made available to those from low income households. As well graduates will not be required to pay interest on their federal student loans until they are making a salary of at least $25,000.
An expanded Home Buyer’s Plan: The Liberal government says it will relax the rules on who can take money out of the RRSP to make a down payment on a home. Right now only first time-home buyers can withdraw from their RRSP to buy a home. In the coming years that will change: for example, if you get divorced or take in an elderly relative or if you are moving for work and need to buy a home, you can borrow from your RRSP to make that happen.
A CRA redesign: Here’s my favourite one, although it seems like an impossible feat. Trudeau has stated he wants to reform the Canada Revenue Agency by contacting people who have tax benefits but aren’t collecting them. Experts say in today’s age of data mining, it’s totally possible. Now wouldn’t it be nice to get a call from the tax man that says we owe you?