While taxes may be one of the certainties of life, what you owe from year to year can change depending on what new rules the government include. In 2018, the government made a range of changes that could impact you and your family. Todd Sigurdson, Director of Tax and Estate Planning with IG Wealth Management helps us understand the tax changes most likely to impact you.
While tax rates haven’t changed, the government has shifted tax brackets, which should lead to tax savings for many households.
The end of income sprinkling
One of the big changes this year impacts incorporated business owners and their families. On January 1, 2018 the new Tax on Income Splitting (TOSI) rules came into effect which reduce income sprinkling opportunities. Income sprinkling occurs when the owner of a private corporation attempts to reduce their family’s overall tax liability by income splitting with lower income family members. In the past dividends could be paid to adult shareholders without TOSI implications, now the rules have changed. For the most part, family members must work at least 20 hours per week or be 25 years of age and directly own at least 10% of the company (votes and value) in order to income split. Business owners should start keeping active timesheets for everyone involved in the business.
New income tax brackets
While tax rates haven’t changed, the government has shifted tax brackets, which should lead to tax savings for many households. The lowest income tax bracket, for which you pay a 15 percent tax rate, has been bumped up to $46,605, from $45,916. Canadians will now pay 20.5 percent on income from $46.605 to $93,208. Other brackets have moved up, too, with the highest one, where income is taxed at a 33 percent rate, is now starting at $205,842, up from $202,800.
Inflation for the Canadian Child Benefit
Starting in July of 2018, the Canadian Child Benefit will be indexed to inflation. That will mean more money for families with kids. The maximum annual amount families can receive for children under the age of six grows to $6,496 this year, up from $6,400. For children aged 6 to 17, families will now be eligible to receive a maximum of $5,481 per child, up from $5,400. Since this benefit is now indexed to inflation, it should rise every year.
Don’t forget about other important tax changes from 2017
Fewer family-related tax credits
There used to be several tax credits for families to claim, but many are now gone, including education and textbook credits for students. (They can still carry forward any unused amounts reported on tax returns prior to 2017). And for those who have long, pricey commutes to work, 2018 is the first full tax-year in which the public transit tax credit is also no longer.
Changes to disability tax breaks
If you care for someone with a disability or illness, three previously existing tax breaks – the caregiver tax credit, the infirm dependent tax credit and the family caregiver tax credit – were streamlined in 2017 into the Canada Caregiver Credit. Also, people who are eligible for the Disability Tax Credit may also receive the Canada Workers Benefit Disability Supplement.
More tax tweaks
Part-time students, as well as full and part-time students with children, could be eligible for up to $1,600 in additional Canada Student Grants and Loans. There’s a new Apprenticeship Incentive Grant for Women that offers women in male-dominated trades fields $3,000 per year of training (or up to $6,000 over two years). And the Canada Pension Plan Death Benefit is now $2,500 for all eligible contributors while before it was pro-rated.
With all these tax changes, it’s likely your family will be affected in some way. Be sure to work with a financial professional to be sure you’re getting all the tax breaks you can this year, and beyond.