2016 tax rates, TFSA limits changed. Now what?

There’s no rush to stuff your TFSA but there are other moves to make



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OTTAWA – High-income Canadians looking to minimize their federal income tax should look at taking any bonuses they may be due or big capital gains this year to avoid paying more when Ottawa’s new top rate kicks in next year.

Tax experts say if you are lucky enough to find yourself in Ottawa’s new top bracket — those earning $200,000 or more — you shouldn’t defer any income that you can take this year because you’ll pay more if you do.

Mariska Loeppky, director of tax and estate planning at Investors Group, said if you’re in the top bracket you can save yourself four per cent in federal tax for every dollar you can push into 2015 compared with 2016.

“In a high-income tax rate environment you’re going to want to look at all the things that can help you save tax,” she said.

Loeppky also suggested people may also want to defer claiming this year’s RRSP contribution until the 2016 tax year to maximize the benefit. She estimated that those in the top bracket could save $800 by deferring the deduction on a $20,000 contribution.

“Nothing says you have to take the deduction in 2015,” she said, noting that the downside is that people won’t see the boost in their tax refund until they file their 2016 taxes if they defer the deduction.

“But if you’ve got quite a bit of RRSP contribution room, it will save you a little bit more money next year if you decide to claim the deduction then.”

However, if you’re in the middle bracket that is getting a tax cut, the opposite is true. You likely don’t want to defer any deductions.

Michelle Munroe, director of tax planning at Fidelity Investments, also said that as long as it won’t push you into a higher bracket, you may want to defer any bonus you might be in line to receive until next year.

“It depends on how big the bonus is,” she said. “You don’t want to push yourself into a higher tax category.”

In addition to the tax rate changes, Ottawa is ending the controversial income-splitting plan for families next year.

The government is also rolling back the annual tax-free savings account contribution limit to $5,500 from $10,000 this year. However contributions will be indexed to inflation as of next year.

Loeppky said the TFSA remains an effective tool for investing tax-free, but the amount you will be able to shelter will be less.

Why there’s no rush to contribute to your TFSA this year »

The Liberal changes to TFSA contributions were actually historic »

The NDP had called on the government to reduce the rate on the lowest income bracket instead of the middle income bracket because that would help the lowest income Canadians.

However, Finance Minister Bill Morneau said the move Monday was only the first step of the government’s plan and promised more in the budget.

During the election campaign, the Liberals promised a new child benefit program that would benefit for low-income Canadians that would be gradually reduced as a family’s income rises. The program would replace the universal child care benefit that paid a $160 per child per month, regardless of family income.

9 comments on “2016 tax rates, TFSA limits changed. Now what?

  1. Why all the fuss?

    We are already maxed to $41k each and have an auto deposit for the RRSP and TFSA limits set for Jan 2 from our bank account. We were able to achieve the $10k each plus maxing up our RRSP balances last year using inheritance money and that is now fully sheltered. Next year’s contributions is from our normal annual savings and we would not have been able to find that much money next year anyway.

    If you have a good savings program and set aside the money each year as part of a well managed family budget, not much is changing for those of us who live in the middle class zone. Maxing at $10k year over year was never achievable for most of us either way.


    • It would have made a difference when you want to sell you house after retiring to protect your income generated from those funds.

      At $10K per year, 2 people over 20 years could put $400K proceeds from their home sale (average current home value) into a TFSA and invest and access as their needs without affecting whatever RRIF they set up and their income tax bracket.

      I wouldn’t have put anything into my TFSAs at all going forward if I didn’t have enough to fill my RRSP because it would have been useful to have the space for the future.

      This was going to be a longer term program for all of us as seniors to have savings after retirement that the government wouldn’t get their hands on twice… oh well


      • If I’m not mistaken, in Canada your principal residence is not taxable as income. So trying to effectively hide the capital gains in your TFSA is not necessary.


        • I believe the person who mentioned selling his principal residence meant that if he were to invest the $400 000 in a TFSA product as opposed to putting some of it in a taxable product, it would have been more advantageous and would not affect his retirement income/pension earnings.


  2. What about the low income pensioner who lives alone? I have not heard anything to increase pension or living allowance for them? It is really hard to live on $1400 per month alone, no chance for saving/


    • Sounds like someone didn’t plan out their retirement very well. If your sole retirement plan was to depend on the government to support you, then that’s your tough luck. I’m of the mind set that the baby boomers may possibly bankrupt the CPP and OAS so I’m planning ahead and saving to fund my own retirement. If for some reason the government wants to throw some cash my way, great! But I’m certainly not relying on that, let alone counting on it as my ONLY source of income.


    • Unfortunately you are up the creek, unless you get another job are start your own business. Trust me, you are not the only one!


  3. What type of investment is preferred to keep in TFSA, RRSP or RESP? I mean grow assets or dividends? Are dividends inside those account are sheltered?


  4. So the universal child care benefit was increased to offset the cancellation of the dependant tax credit, which could be claimed by anyone with dependant children. Now, the plan is to axe the UCCB for most everyone… so that means the dependant tax credit is coming back, right? Didn’t think so…


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