Canada’s highest income earners face the prospect of higher taxes under a new Liberal majority government, but those in the middle can expect a break.
Keith MacIntyre, a tax specialist at accounting and consulting firm Grant Thornton, says people in the middle tax brackets could see a reduction in the federal income tax they’ll be required to pay if Justin Trudeau’s promises are put in place.
“Certainly people in those brackets will be looking forward to that in terms of additional cash flow,” MacIntyre said from Halifax.
The prime minister-designate campaigned relentlessly on a plan to help what he described as Canada’s middle class.
Under the party’s platform, the Liberals pledged to cut the middle income-tax bracket to 20.5% from 22%. However, to help pay for the cut, the party has promised to create a new federal tax bracket of 33% for those earning more than $200,000 a year.
The increase means that the top marginal income tax rate in Canada is set to be between 43% and 58.75% depending on the province, according to TD Bank. The bank says New Brunswick will have the highest combined rate, while Nova Scotia, Quebec and Ontario are also expected to have a combined marginal rate above 50%.
“It is going to be a new day for high-rate income earners in terms of the percentage rates they are going to pay,” MacIntyre said.
Those in the lowest tax brackets won’t see a change in their tax bills under the Liberal plan, but if they have children, the party’s new child benefit is expected to put more money in their pockets.
High-income earners, meantime, will receive less under the Liberals’ plan to eliminate the universal child-care benefit given its proposed replacement is aimed at putting more money into the pockets of lower-income families.
The Liberal child benefit, in combination with the cut to the middle tax bracket, will offset the benefits of the Conservatives’ controversial income-splitting initiative for families. The Liberals attacked income-splitting because it failed to benefit single-parent families or those in which both parents were in the same tax bracket.
For the most part, however, the devil will be in the details for individual families in terms of how much they’ll benefit under a Trudeau government.
Caroline Battista, a senior tax analyst with H&R Block Canada, says it all depends on specific circumstances, including age, income, number of children and other variables.
“In Canada, our system is unique to the individual and tax obligations are based on each person’s allowable deductions and qualified credits, so it’s hard to make a sort of sweeping statement,” she said.
The Liberals also campaigned on a promise that they’ll roll back this year’s increase in the tax-free savings account contribution limit. That means the limit will return to $5,500 after being raised to $10,000 this year.
“One good thing that taxpayers will look for is that the TFSA is still there, it is just that they will have to look to find other places in order to shelter their money or other ways to shelter their money,” MacIntyre said.
The Liberals are also expected to restore the eligibility age for the old age security and guaranteed income supplement to 65. The Conservatives had introduced a plan to raise it gradually to 67.
Trudeau has also promised to revamp and expand the Canada Pension Plan, but details haven’t yet been released.