The new federal government handed down their first budget last week and delivered on a number of promises in their election platform. It also represents a very different budget then the ones from the previous government.
The changes are designed to distribute benefits and programs more fairly based on income. Families and students are the main beneficiaries of the new budget, though many of the proposed changes will not take effect until next year's tax return.
As promised, the government eliminated income splitting for couples, which mainly benefited families with higher incomes where one spouse earned all or most of the income. If you are eligible for this credit, your 2015 tax return will be the last time you can claim it. This change does not affect pension income splitting at all.
New Canada Child Benefit
The Universal Child Credit Benefit (UCCB) will be eliminated this year. The UCCB was the same for every family no matter what the household income, and was taxable in the hands of the lower-income spouse. It will be replaced by an enhanced Canada Child Benefit (CCB). Often still referred to as the baby bonus, the CCB is a monthly, non-taxable benefit for kids under 18.
The new CCB will continue to be calculated based on income, so low- and middle-income families will receive the most benefit. For families earning more than $150,000, they will see their benefits decrease. But those who do qualify will see their benefits increase. According to budget documents, families will see an average increase in child benefit of nearly $2,300 for the 2016-17 year.
The maximum CCB benefit will up to $6,400 per child under the age of six, and $5,400 for a child aged six through 17. For families earning less than $30,000 year, they will receive the maximum benefit. This money is not taxable and will not be reported on your tax return.
Eliminating boutique credits
Boutique credits such as the $1,000 Children's Fitness Tax Credit and the $500 Children's Arts Tax Credit will be eliminated by 2017. You will be able to claim half of the credit in 2016. While these credits sounded like a benefit to parents, you only received a 15 per cent tax credit and parents had to have the ability to pay for the activities, first.
Students will see the elimination of the education amount and the Textbook Tax Credit, but there will be major reforms to the Canada Student Loans Program to help manage student debt loads. The increases to the Canada Student Grants will help more students from low- and middle-incomes. This makes more sense than giving students credits they cannot immediately benefit from.
Though students receive some of the most tax credits available, they are all non-refundable so you need to have tax payable during the year to use them. I have seen students with $25,000 in unused tax credits but with little to no income, the credits are useless until they start their careers and start earning more. Students can still claim their tuition as a tax credit with all the same options of transferring to their parents.
Connecting people and their benefits
One of the most interesting sections of the budget was one that referred to reaching out to people to notify them of the benefits they qualify for. I think it is worth pursuing but I am interested in their approach. However, it will need to be more than sending a letter to an address. Homelessness or unstable housing can make finding people a challenge.
The new Federal Budget means your 2016 tax return will be simpler with fewer slips and credits to claim. It should also distribute government benefits to more low- and medium-income families. It delivers on the election promises. Only time will tell if this budget hits the mark. Many Canadians may feel left out of this budget, but it's only the first one.
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