As Canadians scramble to compile their 2016 tax returns, many remain unaware of the changes that will directly impact their final balance. Every client is different and so, therefore, is the role the advisor has to play with each one. Some will be savvy enough to have their finances in order and have a good understanding of how they stand to either benefit or lose out. For others, tax season is a time of confusion. Regular Canadians run the risk of being hit in the pocket and require the help of their advisors to navigate the new tax landscape.
“The federal government has reduced the arts and fitness tax credits to half of the 2016 levels; and those credits will be completely eliminated for 2017,” explains Myron Knodel, Director of Tax and Estate Planning with Investors Group
. “This is also the last year for the education and textbooks credits for post-secondary students and in 2017 only tuition fees will be eligible for a credit. Although, if you have carry-forward education and textbook credits from the past you can continue to apply those to future years’ income.”
Child tax benefits have also seen a change based on income level and income splitting that had allowed the transfer of $50,000 between spouses has been cancelled. There is good news for those clients who earn an income of between $45,000 and $90,000, who will see their tax rate reduced from 22% to 20.5%. However, Canadians who earned more than $200,000 will see the federal tax rate increase from 29% to 33% for any income above that $200,000.
Although the RRSP deduction can still be utilized, for many Canadian with a straight salary income tax cutting options are becoming increasingly limited. “Income splitting may still be an option if you run a business and have a family member assist you,” Knodel says. “You can pay a reasonable salary to that person and claim that as a deduction to your net income. That income is then taxed in the family member’s return at a lower rate than the business owner.”
Clients who earned some decent investment income in 2016 also have the chance to reduce their tax outlays, Knodel explains. “If that income is being reported on the return of the higher earning spouse, they can make a loan to the lower earner at a current prescribed rate of 1%,” he says. “Then, the lower income spouse can invest that money and any return would be taxed at the lower earner’s rate. Depending on the dynamics and the nature of your income, there are some opportunities available.”
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