The tax season has come. We are not going to look back how our tax numbers work out in 2015 taxation year but also keep in mind the changes for 2016. Here are the highlight of tax changes starting 2016:
Tax-Free Savings Accounts
The contribution limit for TFSA has been changed. The contribution limit has been reduced from
$10,000 to $5,500 starting from January 1,2016.The limit will be indexed for inflation and rouned to the nearest $500. Keep in mind that the over contribution amount will be penalized by CRA. If so, give CRA a call at 11-800-959-8281 immediately and understand the over contribution issue and withdraw the excess right away to avoid unnecessary penalties.
Federal personal tax brackets
The proposed changes to Federal personal tax brackets and rates become effective January 1,2016. There are two key changes:
-An increase in the top tax rate for taxable income over $200,000 from 29% to 33%
-The second tax bracket rate( for taxable income in the range between $45,283 and $90,563)has been reduced from 22% to 20.5%
As a result, the top combined federal and Ontario tax rates on ordinary income increases from 49.53% to 53.53% starting from 2016.
Charitable donations
We all want to make our society a better world through our generous donations. The tax credit for donations made to registered charities is calculated at 15% on the first $200 and 29% on the rest of donation. Now it has been changed slightly. The change will allow higher-income donors to claim a 33% tax credit on the portion of doantions made from income that is subject to the new tax rate of 33%. The change will apply to donations made after 2015. Donations made before 2016 but claimed in a later year will not be eligible for the new 33% tax credit rate.
A few key points:
-The first $200 of donations will continue to be subject to 15% rate;
-The 33% tax credit will be applied to the lesser of:
a.the amount of donations in excess of the first $200
b.the donor’s taxable income in excess of $200,000
-the remainder of donations not applied above will be subject to 29% tax credit rate
For 2015 tax filing, a few takeaways for you:
The Family Tax Cut, announced by the federal government in 2014 is still effective for 2015 taxation year. It provides a non-refundable tax credit of up to $2,000 based on a “notional” transfer of income between spouses. It will be gone for 2016 years and later. So, take advantage of it if applicable.Another point is the result from the change on charitable donations. This means doantions made in 2015 and claimed in 2016 or a later year will NOT be eligible for the proposed 33% tax rate. Keep that in mind.
This Chinese New Year is approaching. This lunar year is characterized by one of the Chinese zodiac: Monkey. Generally, the image of people in this sign is considered being smart, intelligent and active. So, work smart , get organized and plan ahead.
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