The real winners of the new Liberal tax policies

We crunched the numbers. Low and middle-income families will actually come out ahead

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(Steve Russell/Getty Images)

(Steve Russell/Getty Images)

When Canadians woke up to a new Liberal majority government earlier this week, they knew their family finances were about to get a shake-up. The Liberal’s campaign pledged several significant tax policy changes aimed at putting more money back into the pockets of middle-class families—and depending on your income bracket, you’re probably now wondering how all of this is actually going to impact your wallet in real dollars and cents.

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While we don’t know for sure when the new Liberal changes will take place, in reviewing scenarios we did find one big winner: lower-income families with kids. (Scroll down further to see the numbers.) Middle-income families, in which couples earn similar salaries, can also expect a more modest but nice top-up to their annual incomes. And high-income earners, well, sorry to say you’re going to take a bit of a hit (but you probably already knew that).

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Below, we’ve taken into account several different kinds of household scenarios: so whether you’re a low-, middle- or high-income earner, and whether you’re single, married or have kids, you should be able to see where you fit in. In each scenario, we show you the taxes you pay under the current rules versus the Liberal’s new rules—and what kind of gain or loss you should expect.

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But before you check out our calculations, here’s an overview of the Liberal’s new tax policies:

  •  The Family Tax Cut, which provides up to $2,000 in annual benefit to couples with kids under the age of 18, will be eliminated
  • The Universal Child Care Benefit will be replaced with the new and enhanced Canada Child Benefit, providing an extra $2,500 a year for the typical family of four
  • Canadians earning between $44,700 and $89,401 a year will have their tax bracket lowered from 22% to 20.5%, and those earning $200,000 a year or more will have their tax rate increased to 33%
  • And finally, the annual $10,000 TFSA contribution limit will be rolled back to $5,500

Scenario 1: Couple with one earner, salary of $85,000. Two children, one over 6, one under.

Provision Current Rules New Rules Difference
Federal Tax $11,885.35 $10,959.87 +$925
Family Tax Cut $2,000 $0 -$2,000
UCCB $2,640 $0 -$2,640
CCB $1,330 $5,150 +$3,820
Total $105

Conclusion:  The savings due to the new CCB outweighs the loss of the UCCB and the Family Tax Cut. Those families with one stay-at-home parent won’t see much of an improvement compared to families where both parents are working (as shown below in scenarios 2 and 3).

Scenario 2: Couple with equal salaries of $42,500 each ($85,000 combined). Two children, one over 6, one under.

Provision Current Rules New Rules Difference
Federal Tax $8,585.24 $8,189.24 +$396
Family Tax Cut $0 $0 $0
UCCB $2,640 $0 -$2,640
CCB $1,330 $5,150 +$3,820
Total $1,576

Conclusion:  Savings due to extra CCB significantly outweighs loss of UCCB.

Scenario 3: Couple earning $30,000 and $55,000 ($85,000 combined). Two children, one over 6, one under.

Provision Current Rules New Rules Difference
Federal Tax $8,808.11 $8,189.24 +$619
Family Tax Cut $920.22 $0 -$920.22
UCCB $2,640 $0 -$2,640
CCB $1,330 $5,150 +$3,820
Total $878.78

Conclusion: Savings are mainly due to CCB, which outweighs loss of UCCB and net tax increase from loss of Family Tax Cut (but not to as great a degree when incomes are not equally split—as shown in scenario 2).

 Scenario 4: Couple with one earner, salary $40,000. Two children, one over 6, one under.

Provision Current Rules New Rules Difference
Federal Tax $2,442.19 $2,046.19 +$396
Family Tax Cut $0 $0 $0
UCCB $2,640 $0 -$2,640
CCB $4,022 $10,500 +$6,478
Total $4,234

Conclusion:  Significant win due to large increase in CCB, which outweighs loss of UCCB. But a small tax cut due to loss of UCCB.

Scenario 5: Couple earning $225,000 ($85,000 and $140,000). Two children, one over 6, one under.

Provision Current Rules New Rules Difference
Federal Tax $41,011.12 $39,049.75 +$1,961
Family Tax Cut $0 $0 $0
UCCB $2,640 $0 -$2,640
CCB $0 $0 $0
Total -$679

Conclusion:  This couple suffers a net tax cost because UCCB is lost, mitigated somewhat by middle tax bracket rate cut.

Scenario 6: Couple earning $115,000 ($35,000 and $80,000). No kids.

Provision Current Rules New Rules Difference
Federal Tax $15,134.86 $14,605.38 +$529
Family Tax Cut $0 $0 $0
UCCB $0 $0 $0
CCB $0 $0 $0
Total $529

Conclusion:  Tax saving due to rate cut in middle bracket.

Scenario 7: Retired couple with $71,000 income ($20,000 and $51,000 includes $20,000 qualifying pension income).

Provision Current Rules New Rules Difference
Federal Tax $4,644.01 $4,644.01 $0
Family Tax Cut $0 $0 $0
UCCB $0 $0 $0
CCB $0 $0 $0
Total $0

Conclusion:  No change because pension income splitting puts both spouses in the lowest bracket, so no benefit from rate cut. (Deciding not to pension split wouldn’t help because the higher-income spouse would pay tax at a higher rate.)

Scenario 8: Single person earning $70,000.

Provision Current Rules New Rules Difference
Federal Tax $9,888.40 $9,508.92 +$379
Family Tax Cut $0 $0 $0
UCCB $0 $0 $0
CCB $0 $0 $0
Total $379

Conclusion:  Small tax savings due to 1.5% rate cut in middle bracket.

Scenario 9: Single person earning $250,000.

Provision Current Rules New Rules Difference
Federal Tax $59,254.79 $60,587.79 -$1,330
Family Tax Cut $0 $0 $0
UCCB $0 $0 $0
CCB $0 $0 $0
Total -$1,330

Conclusion:  Net tax increase because 4% increase over $200,000 exceeds 1.5% cut in middle bracket.

 

33 comments on “The real winners of the new Liberal tax policies

  1. And what has been done for (or to) single seniors with modest or low incomes? Interesting to note, also, that your above comments ignore single people under 65 as well.

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    • If you dont save a single penny but make an average salary and work for 35+ yrs, the government will make sure you are not destitute with CPP, OAS, GIS. Seniors have the lowest poverty rates due to the benefits they have had through the years now, pension splitting etc. Middle age families with kids are the ones struggling.

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      • Middle class families with kids are struggling. Sure. But don’t forget that seniors have already struggled through that and more, and contributed more tax dollars, and now they just want to be able to enjoy a retirement as their earned reward. “Not destitute” isn’t enough. If you think about it objectively you will see that being able to buy more stuff in your crunch years (from more tax breaks) isn’t worth the tradeoff of aspiring to just a “not destitute” retirement (from paying more tax or having less benefits in your senior years). Not for you when its your own turn to be a senior, or for any Canadians, especially those that have already made their contribution during their own difficult years and have essentially prepaid their retirement to an expected standard. FYI – I am neither a senior nor in my crunch years. I am just calling it the way I see it.

        Reply

  2. What about single folks with no children earing $40K?

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    • None of this affects you in that income range with no kids.

      Reply

  3. How about a single earner with income over $300K with two kids over 6 and younger than 16.

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  4. Have you taken into account here the fact that the UCCB was taxable?

    “Will actually” come out ahead? Was there doubt? Couldn’t you have crunched these numbers before the election?

    And the hit for the rich is tiny. Even the single person making $250K only experiences a half of a percent in increased remittances.

    Our family will probably end up paying slightly more under these new rules as well, but the chances that we’ll even notice it are incredibly slim.

    There’s nothing less appealing than a well off person obsessed with lowering their taxes.

    Reply

    • there is something less appealing than a taxpayer wanting to lower lower their taxes under 54%…..

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      • Many small business owners, whom Justin called tax scammers, will have no incentive to work in order to earn income above the 200k level. Wondering how that incentive will play out with regard to how many employees they will need? Perhaps unintended consequences for job creation/job losses? CD

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        • This is a false argument in the progressive tax system, you will ALWAYS come out ahead the more money you make. Do you think if a small business owner makes 300K instead of 200K, the extra couple thousand in taxes offsets making an extra 100K in income? There is still a lot of incentive to grow and succeed.

          Reply

          • As a small business owner, you can pay yourself a dividend rather than a salary, and offset the increase.

  5. Wondering as my wife and I receive ( pensions0 around 41,000 a year will there be any reduction in the tax we currently pay? We do income splitting.

    Reply

    • Doubt it, if you split the pension 20.5K each, then you will not receive the tax break as the tax break is in the 45-89K tax bracket

      Reply

  6. where does a widow with a yearly income of $27,000.00 fit into this picture?

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    • No benefit for you, and no negatives either, unless you have young kids then you will be way ahead.

      Reply

  7. UCCB is taxable, more over from 2015, there is no child tax credit (Line 367 2255*15% for children born in 1998 or later). All these calculations involving children have not considered these two factors, so these calculations are terribly wrong.

    Reply

  8. I am a widow receive OAS, CPP and a RRIF. What happens when I pass away and have $350,000 in my RRIF along with some other investments, a cabin that I rent out? Thank you

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    • This doesn’t change existing inheritance law. Go talk to a lawyer and set up a will.

      Reply

      • JAGD — you missed the point. I am talking about taxes! I suggest you update yourself as I have a will, enduring POA and well as Representation documentation (health care directives). It appears that when I die my estate will include my entire income as well as potential deemed disposed assets. The result is a 4% increase in my taxes on everything above $200,000 upon death. Yes I do have an estate plan and do not consider myself in the top 1% until I die!

        Reply

  9. What about a senior, living alone. with an income less than $28,000?

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    • No change unless you have young kids under your care.

      Reply

  10. Will these so called “savings” offset what I lose in higher electricity costs and the new carbon taxes that are sure to implemented?

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  11. How come you don’t show a example of a single person having a taxable income of $210,000.00. The reverse happens (someone making over $200k has a tax “cut)

    Reply

  12. What about a single parent with 2 children over 6 making $40k a year? Will the new tax changes affect me?

    Reply

  13. Would anyone know when these new tax rules will come into effect? When filing 2015 taxes, will it still be governed by the current rules? or will we see the new tax brackets, no family tax cut, in our 2015 tax return and assessment? or will it only take place once a new budget is tabled and thus only 2016 and beyond?

    Reply

    • New rules take effect Jan. 1, 2016.

      Reply

  14. how does this effect a single parent with one child over 6 ,making just under 45 k

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  15. This does not cover single parents whatsoever!

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  16. Not sure how affects our family children 10 15 single earner of 85000 two parents

    Reply

  17. And what about a single mom, two children (14 yr) (21 going to college part time, still arguing with the Govt to get her DTC for having Epilepsy) since she was 4!), no FRO money from their Dad… income is $50K approx. Kindly advise what the Budget is good for me!

    Reply

  18. Trudeau’s plan is terrible for families is not good for hard working middle class families that are already paying high day care fees. We are getting penalized for having two jobs! Thanks Trudeau nice job yet again!

    Reply

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