The real winners of the new Liberal tax policies

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

  33

by

Online only.

  33
(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.

What to do with your TFSA (before Trudeau trims it) »

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).

Liberal win: Good for first-time home buyers, investors »

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.

Do you really want that raise? »

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.

 

Comments are closed.