Federal tax rate changes for 2016

On December 7, 2015, the new Federal Government announced tax law changes that came into effect January 1, 2016.

Major changes include a reduction of 1.5% in the federal tax rate for individuals whose income is between $45,283 to $90,562, from 22% to 20.5%; and an increase of 4% for individuals with income over $200,000, from 29% to 33%.

To maintain integration of the tax system, consequential changes were made to adjust corporate tax rates through changes in the corporate investment income tax and dividend refund rates.

These changes affect individuals, trusts, estates and corporations (corporations with a noncalendar year-end are subject to proration).

Personal tax

In 2015, the federal top rate for individuals of 29% applies to taxable income earned above $138,586; every dollar of taxable income earned thereafter is subject to tax at 29%.

Starting January 1, 2016, the 29% federal top rate applies on taxable income up to $200,000; every dollar thereafter is taxed at 33%.

This results in a combined federal and Ontario tax rate of 51.97% for income above $200,000, and a top tax rate of 53.53% for income above $220,000. This is a 4% increase compared to the 2015 combined federal and Ontario top tax rate of 49.53%.

The combined federal and Quebec top tax rate of 53.31%, applies to income over $200,000. This is a 3.34% increase compared to the 2015 combined federal and Quebec top tax rate of 49.97%.

It should be noted that Quebec residents get a 16.5% refundable abatement which is a reduction of the federal tax.

The following is the top tax rate on income for individuals.

Tax and trusts

Starting January 1, 2016, the federal tax rate for trusts is increased to 33% from 29% from the first dollar of taxable income (subject to abatement only in Québec).

This results in a combined federal and Ontario tax rate for Ontario trusts of 53.53%, and a combined federal and Quebec tax rate for Québec trusts of 53.31%.

Taxable income in a Graduated Rate Estate and Qualified Disability Trust will continue be taxed at the graduated personal tax rates.

Corporate tax

As a result of the increase to the federal personal tax rates, the following changes were made to the corporate tax rates:

Refundable tax

Starting January 1, 2016, the tax rate on investment income earned by CCPC (Canadian-Controlled Private Corporation) will increase from 6.67% to 10.67%.

For corporations with a non-calendar year-end, the rate increase will be prorated for taxation
years that straddle December 31, 2015.

The following is the corporate tax rate on investment income earned in a CCPC.

Part IV tax

Part IV tax is a refundable tax levied on dividends received from non-connected corporations and from connected corporations where the dividend payor receives a dividend refund. Starting January 1, 2016, the Part IV tax will increase by 5%.

Dividend refund rates

The following is the dividend refund rate for corporate dividends paid in 2015 and 2016.

It is the year-end that the dividend falls into that determines the dividend refund rate, NOT the precise date of the dividend. The 5% dividend refund increase is prorated for taxation years that straddle December 31, 2015.

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