The new year in Canada has arrived, bringing with it new tax rules, as the Liberal government fulfills a campaign promise to bring some financial relief to middle-class income earners.
Beginning Jan. 1, the income tax rate for people earning between $45,000 and just under $100,000 a year drops to 20.5 per cent, from the old rate of 22 per cent.
The modification translates to a savings of approximately $650 a year for those earning the maximum in that bracket.
Conversely, the tax rate for the estimated 320,000 Canadians earning more than $200,000 annually is rising from 29 per cent to 33.
Business consultant and author Peter Merrick told CTV News Channel on Friday that the amount of money high-income earners can expect to set aside for their tax bill varies by province. He said top income earners in Alberta will see the biggest increases this year.
“Someone earning over $300,000 is going to see an increase of over $20,000 on their tax bill this year and that’s a combination of what the province in Alberta is doing and also the federal government,” Merrick said.
The Liberals had said that the tax-rate hike and reduction would offset each other, but the new tax program comes with a $1.2 billion price tag, which will be added to the planned $10-billion deficit.
In addition to income-tax changes, the federal limit for contributions to tax-free savings accounts is also dropping to $5,500 from $10,000 per year.
Merrick said that those who have already contributed $10,000 to their TFSA won’t be impacted by the reset.
“Anyone over the age of 18 has the ability to put in $5,500 this year, or if they don’t use it, they can accumulate it,” said Merrick, who is also president of MerrickWealth.com. “Similar to their RRSPs, if you have unused room you can put it in at a later time.”