By Tom O’Dwyer, Ability Tax and Trust Advisors
2015 was an interesting tax year as we had previously enacted tax legislation not taking place until 2016, and a newly elected government that has both repealed certain current tax measures and plans to add new tax measures in 2016 that may impact your 2015 tax planning. As a result of these changes, tax planning in 2015 may be somewhat dependent on the changes proposed for 2016, but there are no certainties until March 22, 2016, the day the new budget is announced.
Tax developments for 2015
Children’s fitness tax credit is now a refundable tax credit (i.e. a cash credit for the eligible claim amount) for 2015 that may be claimed up to a maximum $1,000 for children registered in eligible programs. If the child is eligible for the disability tax credit, an additional $500 may be claimed as long as a minimum of $100 was spent on a registered program on behalf of the child.
With respect to child care expenses, 2015 tax credits have increased to a maximum of $11,000 in eligible expenses for each child with a disability. As you may be aware, with respect to children and tax benefits, the child tax credit has been repealed for 2015 and replaced with an enhanced version of the Universal Child Care Benefit (UCCB) that will provide a new benefit of $720 per year for children age 6 to 17. In addition, beginning in 2015, parents caring for a child with a disability are eligible to claim the family caregiver amount which, indexed for 2015, results in a tax credit of $2,093.
Some other noteworthy changes for 2015 include an extension to 2018 for a qualifying family member to be a plan holder of a registered disability savings plan (RDSP) and an increase of lifetime capital gains exemption limit to $1,000,000 for dispositions of qualified farm or fishing property.
Staying ahead for 2016
There will be some significant tax changes in 2016 that may impact your planning. Beginning in 2016, graduated rated testamentary trusts will be eliminated with the exception of trusts that qualify as a qualified disability trust (QDT).
Generally, a trust will be a QDT if the beneficiary of the trust qualifies for the disability tax credit (DTC). In addition to the requirement that the beneficiary is DTC eligible, there are other criteria under the Income Tax Act that must be met that include filing annual elections.
As trust tax rates are increasing for 2016, if you are a trustee, or have included a trust in your estate plan for a beneficiary with a disability, it is a good idea to seek professional assistance to review the trust agreement and or your will.
Other changes in 2016 that will impact your planning include a new Home Accessibility Tax Credit (HATC) for seniors or individuals with a disability (or their qualifying family members) to renovate their principal residence. The HATC is a non-refundable tax credit for up to $10,000 in qualifying expenditures to renovate a principal residence (i.e. rental properties do not qualify) that will allow individuals with a disability to gain access or become more mobile in their homes.
In planning for 2016, keep in mind that a new bracket for high income earners ($200,000+) has been added, the tax rates for investment income earned in small business corporations have significantly increased, and the contribution limit to a tax free savings account has been reduced from $10,000 to $5,500. As always, seek professional advice if any of these tax changes impact your planning for 2016.