The 2015 tax year will be a beaut for accountant Mark Goodfield if the Liberals win the federal election.
A key Liberal election promise is to tax wealthy Canadians more and cut taxes for the middle class. You’ll pick up as much as an extra $670 per year if you’re middle class. If you’re a member of the group the Liberals refer to as “the wealthiest Canadians,” it’ll cost you more in both dollars and anguish.
There are currently four federal income-tax rates and they top out at 29 per cent for earnings above $138,586. The Liberal plan would create a new 33-per-cent rate for earnings above $200,000, which may sound somewhat innocuous on the surface. The problem is that when you add provincial taxes to the federal take, you end up with a top marginal rate above 50 per cent in some cases.
Cue the grumbling if that happens. “People just abhor paying tax once it goes past 50 per cent,” said Mr. Goodfield, a partner at BDO Canada LLP. “It truly is a psychological barrier.”
The Liberal platform on taxes and other matters of personal finance has both winners and losers, of course. Middle-class earners will save money on income taxes, and people retiring in the decades ahead would benefit from the party’s intention to kill a plan to gradually increase the age of eligibility for Old Age Security to 67 from 65. For parents, the Liberals would introduce a new Canada Child Benefit that the party claims to be more generous than the current Universal Child Care Benefit, at least for middle-and lower-income families.
People making more than $200,000 will definitely have a case that they’re the big losers if the Liberals win, even if the party says this group represents less than 1 per cent of Canadians. Caroline Battista, senior tax analyst at H&R Block Canada Inc., said someone earning $300,000 would pay $3,330 more in taxes; at $500,000, the extra tax would amount to $11,330. She said provinces that would have combined top marginal tax rates above 50 per cent if the Liberals win are Manitoba, Ontario, Quebec, New Brunswick and Nova Scotia.
Mr. Goodfield said he got a sense of people’s attitude toward higher income taxes earlier this year, when he filed returns for Ontario clients who were affected by a top marginal rate very close to 50 per cent. “I got a lot of complaints then,” he said. “There were a lot of people who weren’t happy.”
These same people won’t like another Liberal proposal – the one that would scrap the increase in the annual contribution limit for tax-free savings accounts to $10,000 from $5,500. Liberal Leader Justin Trudeau has said that only the wealthiest Canadians have the money to take full advantage of the higher limit.
Still another irritant to high earners would be the Liberal proposal to enhance the Canada Pension Plan. If you’re set for retirement, higher CPP contributions are like a tax increase.
The Liberals also plan to eliminate family income splitting, which the Conservatives introduced just about a year ago. The Family Tax Cut allows the higher-earning spouse in a family with kids under 18 to transfer up to $50,000 of income to the lower-earning spouse so it can be taxed at a lower rate. The maximum tax break under this measure is $2,000.
The Liberals say income splitting for families favours the wealthy, and the Parliamentary Budget Officer has said it benefits higher earners most. However, Ms. Battista said a family with a high earner at $60,000 and a low earner at $12,000 would save $1,200 in tax.
The income-tax measures proposed by the Liberals are aimed at supporting the middle class, which they appear to define as people with taxable income between $44,700 and $89,401. If you’re in this group, the party says your tax bill would decline by as much as $670 per year, or the equivalent of $12.88 per week. Your spouse is middle class, too? Now we’re talking a maximum tax savings of $1,340, or $25.77 per week.
On an individual basis, high-income earners will pay more than members of the middle class will gain. Might they revolt? Mr. Goodfield expects some angry chatter about moving money offshore, but little to come of it outside the ultra-rich. “In most cases, it’s not very easy,” he said. “In a general sense, you have to actually leave Canada, which leads to a whole bunch of issues. In the end, people will grin and bear it.”Report Typo/Error