Income Tax Changes for Individuals: Review of 2014 and Things to Remember for 2015

There have been a number of important changes announced by both the federal and Ontario governments which will impact individuals in Canada. Some of these changes took effect in 2014, and should be kept in mind when preparing your tax return. Other changes will affect your 2015 tax year and the years going forward.

 Income Splitting

This policy dates back to a promise made by the Conservative Party during the 2011 election campaign that they would introduce income splitting for families.

 Effective for the 2014 and subsequent taxation years, the federal government has introduced a new 'Family Tax Cut' credit. To be eligible, the individual must be a Canadian resident at the end of the year, have an eligible spouse or common law partner who has not claimed the credit, and have a child under the age of 18 who ordinarily lives with the individual or his or her spouse or common law partner throughout the year. It allows the higher income spouse to allocate up to $50,000 of taxable income to his or her spouse who is at a lower income level. This allocation will not change the actual net or taxable income of each spouse, it is only relevant for the purpose of this credit.

 The amount of tax each spouse would pay is calculated on their income levels both prior to this allocation and after the allocation, and the non-refundable tax credit which is available is the difference in taxes payable under the two calculations, to a maximum of $2,000.

 Children's Fitness Tax Credit

The amount which may be claimed for the federal children's fitness tax credit has been increased to $1,000 starting in 2014. Starting in 2015, the credit will also be refundable, which means that even if the income of the parents is too low to owe taxes, they will still receive a refund. The types of expenses eligible to be claimed are generally registration or membership fees for physical activities which are supervised and ongoing for at least 8 consecutive weeks, or 5 consecutive days if it is a children's camp.

 Child Care Expenses

Beginning in the 2015 tax year, the federal government has increased the deduction amount from $7,000 to $8,000 for children under the age of 7, from $4,000 to $5,000 for children aged 7 to 16, and from $10,000 to $11,000 for children who are eligible for the Disability Tax Credit. These amounts are still limited to the amount actually spent on child care, and to two-thirds of the lower income spouse's income.

 Universal Child Care Benefit (UCCB)

The UCCB has been increased by the federal government, starting as of January 1, 2015, to $160 per month, from $100, for each child under the age of 6, i.e. an increase of up to $720 per year to $1,920 (although the first increased payment won't be made until July 2015).

 Additionally, for children ages 6 to 17, the federal government has introduced a new $60 per month entitlement per child.

 The Child Tax Credit, which allowed for a non-refundable credit for each child under the age of 18, was eliminated as part of these changes.

 Ontario Income Taxes

 The other major changes which were enacted this past year, and effective for the 2014 and subsequent tax years, were with respect to income taxes payable by individuals in Ontario. The threshold for the highest marginal rate of tax, being 13.16%, was lowered significantly, from $514,090 to $220,000. In addition, a new tax bracket was created, for taxable income between $150,000 to $220,000, which will be taxable at a rate of 12.16%.