How federal budget 2016 aims to help middle-class wallets, and target wealthy Canadians: ‘A classic soak the rich scheme’

Posted on March 25, 2016 in Governance Policy Context – FP/Personal Finance/Family Finance
March 22, 2016.   Garry Marr

The promise is that nine out of 10 Canadian families will receive more in child benefits after Tuesday’s budget.

Out of luck, depending on your perspective, are the wealthy, who will be deprived of some key tax-deferral vehicles.

$2,300: Average increase in child benefits for families in 2016-2017
$25,000: New income threshold for repayment of student loans
$947: New toplevel Guaranteed Income Supplement for single, low-income seniors

“It’s a classic soak the rich scheme,” said Aaron Wudrick, federal director of the Canadian Taxpayers Federation. “When you talk about the one per cent, a lot of these people are living in Toronto and Vancouver. Making $100,000 or $150,000, you’re not starving but you’re not one of these people with a yacht or Rolls Royce and that’s disconcerting: These people are essentially middle class and they are not benefitting from these measures.”

One of those measures is the new Canada Child Benefit, which will provide families with a single, tax-exempt payment every month, replacing the current system of combined National Child Benefit Supplement, Canada Child Tax Benefit and Universal Child Care Benefit. Higher income Canadians, generally families with incomes of $150,000 or more, will receive lower benefits under the new system.

Dubbed Growing The Middle Class, the Liberal budget will see an average increase in child benefits of almost $2,300 in 2016-2017.

Under the new system, the maximum annual benefits will be $6,400 per child under age 6 and up to $5,400 for children ages 6 to 17. Families with less than $30,000 in net income are eligible to receive the maximum benefit.

Calculate: “How much you could you benefit?” < >

At the same time, the budget proposes to do away with income splitting for couples with children under the age of 18 for the 2016 tax year and going forward — reversing a popular move from the last budget, instituted by the Conservatives for wealthy Canadians who had one spouse earning substantially more than the other.

Pension income-splitting is not affected by the changes.

As part of its simplification of child benefits, the Liberals will eventually eliminate the children’s fitness and arts tax credits, which were worth up to $150 and $75 per child on up to $1,000 and $500 in eligible expenses, respectively. In 2016 the maximum eligible benefits for both programs will be reduced by half and then completely eliminated in 2017.

“We were never fans of these boutique (tax breaks), but (they) have to be replaced by broader tax relief,” Wudrick said.

Jamie Golombek, managing director of tax and estate planning with CIBC Wealth Advisory Services, said the government is taking away some key tax planning vehicles that allow the wealthy to rebalance their portfolios without incurring a deemed disposition, meaning they will face immediate tax consequences.

“Wealthier (Canadians) that have taken advantage of various tax planning opportunities, some of those have been eliminated,” said Golombek, adding that the changes affect wealth in non-registered accounts. “You were (previously) able to buy a mutual fund and rebalance your portfolio by switching from one class of shares to another without paying any tax as long as you were within the same corporate structure.”

But, as of Oct. 1, investors will no longer be able to switch those shares without triggering a tax.

Chart: “Increase in Child Benefits” >

“I think the average Canadian will come out ahead in this budget,” Golombek said.

Students will also receive some money with Canada student grants increasing by 50 per cent. They’ll jump from $2,000 to $3,000 for students from low-income families, $800 to $1,200 for students from middle-income families and $1,200 to $1,800 for part-time students. The increased amounts will be available for the 2016-2017 academic year.

Ottawa also plans to ease up the rules on the Canada student loans repayment assistant plan. Students won’t have to start repaying the loans until they are making more than $25,000 per year — and the government will cover the interest. The current repayment threshold is $20,210 per year in income.

For seniors, the Liberals had already pledged publicly to return eligibility for Old Age Security to age 65 after the Conservatives had introduced a plan to increase eligibility to age 67 and implement those changes between 2023 and 2029.

But the budget, targeting single seniors, also calls for an increase in the guaranteed income supplement, which is aimed at low-income seniors. The change will mean up to $947 annually for some seniors and the $670 million investment is expected to impact 900,000 single seniors across the country. Seniors with annual income of $4,600 or less, excluding OAS or GIS benefits, will receive the full $947.

The Liberals are also increasing support for senior couples living apart, something often brought about because one spouse is in long-term care. Couples who receive GIS but have to live apart for “reasons beyond their control” will receive benefits based on their individual incomes.

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