Every year, when the snow begins to melt and spring is just around the corner, it’s time to start thinking about filing our income tax returns. For most of us, this becomes a real headache. Here’s a summary of what’s new for 2016, both federally and in Quebec, as well as a brief reminder of measures already in effect.
Tax news for 2016 – federal
- Decrease in the federal tax rate for incomes between $45,282 and $90,593: the marginal rate on this income bracket falls from 22% to 20.5%, while the marginal rate on incomes over $200,000 rises from 29% to 33%, bringing the combined top tax rate for a Quebec resident to 53.31%.
- The federal government is phasing out tax credits for children’s physical fitness and artistic activities: this reduces the amount of the credits for 2016 to 15% of eligible expenses not exceeding $500 for physical activities and not exceeding $250 for artistic activities. Both credits will be eliminated for the 2017 and subsequent tax years.
- Introduction of a new home accessibility tax credit for seniors and persons eligible for the disability tax credit: this new credit will enable eligible taxpayers to claim an amount for eligible expenses incurred for certain renovation work carried out on their home to make it safer or more accessible. The amount of the credit is limited to 15% of eligible expenses not exceeding $10,000.
- Introduction of a new refundable credit for school supplies for teachers and early childhood educators: the amount of the credit is 15% of eligible expenses not exceeding $1,000. To qualify for the credit, teachers and early childhood educators, i.e., an eligible teacher or early childhood educator employed by an elementary or secondary school or a regulated child care facility, will need to obtain certification from their employer that the supplies were purchased for the purpose of providing instruction or enhancing learning in a classroom setting.
- Starting with the 2016 tax year, in order to benefit from the full principal residence exemption, all taxpayers will be required to report certain basic information on their tax return when selling their principal residence (date of acquisition, proceeds of disposition and description of the property). Failure to file this information could result in significant penalties.
New for 2016 – Quebec
- Introduction of a Tax Shield in Quebec: essentially, this is a refundable tax credit that offsets part of the loss of certain tax credits that occurs when your working income has increased. The tax credits affected by the increase in income are work incentive tax credits: the work premium, the adapted work premium and the tax credit for child care expenses.
- Increase in the refundable tax credit for youth activities: the amount of expenses eligible for the credit will be $400 in 2016 and $500 in 2017. Note that the credit is 20% of eligible expenses and is refundable for children from families whose family income does not exceed $134,095 in 2016.
A reminder of some of the measures already announced
- Any taxpayer who holds foreign property with a cost in excess of $100,000 is required to complete Form T1135. Foreign property includes money on deposit with financial institutions, shares in non-resident corporations, debt securities issued by a non-resident, an interest in a non-resident trust, real estate or any other property except personal-use property. Note that the penalty for failure to file this form can be up to $2,500.
- The federal government allows you to voluntarily defer your Old Age Security (“OAS”) pension for up to five years, between the ages of 65 and 70. This could be an attractive option if you’re still working and your income is sufficient to maintain your cost of living, or if you expect to have a very high income that will require you to repay your OAS. For each month of deferral, the PSV is increased by 0.6%, for a maximum of 7.2% per year.
- If you own a residential rental property, you are required to produce 31 statements. These statements must be given to each tenant or sub-tenant as at December 31, 2016. Relevé 31s must be sent to the Agence du revenu du Québec and given to tenants or subtenants by February 28, 2017.
Finally, to get ready to maximize your tax savings for 2016, here are two more recommendations:
- Have you contributed to your RRSPs? Not only do RRSPs provide tax savings, they also give you greater access to a number of government credits and payments. If you haven’t yet contributed, you can do so, as the deadline for 2016 is March1, 2017.
- Do you receive pension income? If so, it may be worthwhile splitting your pension income with your spouse, provided their income is lower than yours. The tax savings can range from a few dollars to several thousand dollars.
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