Individual and Trust Tax Rates Bill — Royal Assent | KPMG | CA

Individual and Trust Tax Rates Bill — Royal Assent

Individual and Trust Tax Rates Bill — Royal Assent

Bill C-2 changes tax rates for individuals and trusts.

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It also contains consequential changes affecting Canadian controlled private corporations. The bill reduces the federal personal income tax rate on income between $45,283 and $90,563 to 20.5% (from 22%) and increases the personal income tax rate on income over $200,000 by four percent, so that it is 33% (from 29%), starting January 1, 2016.

The bill also reduces the Tax-Free Savings Account contribution limit to $5,500 per year (from $10,000 per year), starting in 2016.

Bill C-2 is enacted for U.S. GAAP purposes on December 15, 2016, the date the bill received Royal Assent. Bill C-2 was substantively enacted for the purposes of IFRS and Accounting Standards for Private Enterprise as of December 9, 2015, which is when it received first reading.

Impact on Canadian controlled private corporations
Bill C-2 also makes changes to several tax measures that affect Canadian controlled private corporations. The bill includes measures that:

  • Increase the refundable tax on a Canadian controlled private corporation's investment income to 10 2/3% (from 6 2/3%), effective for tax years ending after 2015 
  • Amend the definition of refundable dividend tax on hand (RDTOH) effective for tax years that end after 2015, to adjust: 
    • The percentage of aggregate investment income that can be included in RDTOH to 30 2/3% (from 26 2/3%) 
    • The foreign tax credit reduction related to foreign investment income to 8% (from 9 1/3%) of foreign investment income 
    • The adjustment factor for taxable income of a corporation for the year that exceeds the total of the portions of that income that has benefited from either the small business deduction or foreign tax credits to 30 2/3% (from 26 2/3%) 
    • The gross up factor for foreign non-business income to 100/ (38 2/3) from 100/35 
  • Increase the dividend refund rate to 38 1/3% (from 33%) effective for tax years ending after 2015 
    • For tax years beginning before 2016, the above rate changes are prorated for the number of days in the tax year that are after 2015
  • Increase the Part IV tax rate to 38 1/3% (from 33 1/3%) for tax years ending after 2015 
    • For tax years beginning before 2016, assessable dividends are taxed at 33 1/3% if they are received before 2016 and at 38 1/3% if received after 2015 
  • Increase the percentage of unused non-capital losses and farm losses that may reduce Part IV tax to 38 1/3% (from 33 1/3%) for tax years that end after 2015 
    • For tax years that begin before 2016, losses applied to reduce Part IV tax are used first to offset assessable dividends that are subject to the higher 38 1/3% rate. 

For more information, contact your KPMG adviser.

Information is current to December 20, 2016. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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