A new year and a new government introduce a new highest marginal tax bracket, which brings with it the pain of new and aggressive tax increases.
The Liberals promised new and popular spending strategies during last year’s election campaign and said they could be partially financed with only modest increases in taxes on the wealthiest Canadians.
The new government introduced legislation after the election that would decrease taxes by 1.5 percent for the middle tax bracket, which are those who make $45,282 to $90,563.
Not so fortunate are taxpayers earning more than $200,000 in taxable income, which is apparently the floor for defining wealthiest Canadians. They now fall into a new top tax bracket that features at least a four percentage point hike in taxes over the former highest tax bracket.
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It was positioned as a minor tax increase for those who can most afford it, but the increase is one of the most significant imposed on taxpayers in the last decade.
Alberta and Ontario have added similar new tax brackets at the highest marginal tax rates over the last couple of years, which forces taxpayers in those tax brackets to pay significantly more than they did two to three years ago.
The federal rate for middle bracket taxpayers will drop modestly to 20.5 percent from 22 percent
The rate for those who earn more than $200,000 in taxable income jumps to 33 percent from 29 percent.
In Alberta, the combined federal and provincial tax hit increases 7.75 percentage points to 48 percent from 40.25 percent.
In Ontario, the combined rate rises to 53.53 percent from 49.53 percent.
These increases far outstrip the rise in the inflation rate for the last few years.
The new rates will affect producers who farm as a sole-proprietorship, a partnership and a family farm corporation. They will affect farmers’ decisions about whether to pay themselves salary and dividends (for corporations only) and decisions regarding the claiming of the optional inventory adjustment and accounting for the farm on a cash or accrual basis.
It now becomes much more complex for the family farm corporation to issue a dividend.
Eligible dividends and ineligible dividends have different marginal tax rates and therefore different gross-up percentages. This makes the decision to issue the dividend in 2016 far more complicated than a year earlier.
The tax on eligible dividends at the highest marginal tax rate rises 10.69 percentage points to 31.71 percent in Alberta, 5.52 percentage points to 30.33 percent in Saskatchewan and 5.52 percentage points to 37.78 percent in Manitoba.
The increases on ineligible dividends are 9.4 percentage points to 40.24 percent in Alberta, 5.15 percentage points to 40.06 percent in Saskatchewan and 4.92 percent to 45.69 in Manitoba.
Farmers should seek tax or ac-counting advice that relates to their specific needs.
