Canada will be ushering in the New Year with a new federal government in place

and, most likely, new taxation rates, both on federal and provincial levels. With this

in mind, there is some planning that should be considered for 2015.

Below is a summary of the top personal tax rates in 2015 and the anticipated 2016

rates, assuming the Liberal party enacts their platform for the 2016 year. It is also

assumed that the BC surtax will be rescinded in 2016 as originally planned.

2015

Personal RatesTop

PersonalRate

CapitalGains

IneligibleDividends

EligibleDividends

BC 45.80% 22.90% 37.98% 28.68%

AB 40.25% 20.13% 30.84% 21.02%

SK 44.00% 22.00% 34.91% 24.81%

MB 46.40% 23.20% 40.77% 32.26%

ON 49.53% 24.77% 40.13% 33.82%

QC 49.97% 24.99% 39.78% 35.22%

2016

Personal RatesTop

PersonalRate

CapitalGains

IneligibleDividends

EligibleDividends

BC 47.70% 23.85% 40.61% 31.30%

AB 48.00% 24.00% 40.24% 31.71%

SK 48.00% 24.00% 40.06% 30.33%

MB 50.40% 25.20% 45.69% 37.78%

ON 53.53% 26.77% 45.30% 39.34%

QC 53.31% 26.66% 44.23% 39.83%

Tax Alert – Preparation Key to Managing Tax Rate Increases

Tax Alert – Canada

To find out what MNP can

do for you, please contact

a MNP office in your

region.

TAX ALERT - CANADA

As a business owner, this is an opportune time to plan your overall tax situation

given the increasing income tax rates coming in 2016. If you are employed and

are in the highest marginal tax bracket, there is still planning that can be done this

year.

Prepaying Tax: This is counterintuitive to our previous planning ideas,

but when tax rates are increasing, you may consider taking your dividends

in 2015 versus 2016. This will be valuable especially if you have large

cash needs in the near future. The tax rate on dividends will increase inmost provinces, some higher than others.

Dividends vs Salaries: Previously, it was typically somewhat more

advantageous to have income earned in a corporation and pay it out as adividend. If you make more than $200,000 a year, you will want to discuss

this strategy fully with your advisor to ensure it still makes sense for you.There are times that we may choose to pay income as salaries or bonusesversus using a dividend strategy, as the overall tax rate on corporate

income flowed out as dividends has increased and it is now more costly

than just taking salaries. Therefore, the advantage of the deferral will need

to be considered when developing your remuneration strategy, and caremust be taken to consider other personal criteria, such as CPP and the

new Ontario Retirement Pension Plan (ORPP).

Dividends Increase Your Income More: If you have dividends included

in your personal income, they are generally taxed at lower rates than othertypes of income like salaries and interest, to account for the corporate tax

that has already been paid on this income. However, dividends have agross-up factor included in them, and the amount that is shown on your tax

return can be up to 38% higher than the actual amount received. This canhave the impact of pushing you into the top tax brackets more quickly, andcould increase your overall tax burden on other income.

Consider Your Tax Jurisdiction: Many wealthy families have chosen to

be residents of Alberta to benefit from the ‘Alberta Tax Advantage,’ whilehaving secondary homes elsewhere in Canada. These families will need to

discuss where they should be resident for tax purposes in this newenvironment. As Alberta’s top tax bracket taxes income above $300,000,

there are still advantages to paying tax in Alberta, but they are reducedcompared to prior years.

B.C. Surtax on High Income Earners: The B.C. surtax is slated to be

rescinded in 2016, but to rescind this would cause B.C. to be the lowest

taxed province in Canada. If the province does drop its tax rates, this may

impact where families with homes in both Alberta and B.C. will file.

Maximize TFSA Contributions: The TFSA contribution limit increased

from $5,500 to $10,000 for 2015. In its campaign platform, the Liberalgovernment pledged to reduce this limit back to $5,500; therefore, it maybe advantageous to maximize your contribution for 2015.

Defer Deducting RRSP Contributions: If you have an RRSP contribution

in the first 60 days of 2016 and you are making more than $200,000 peryear, you will likely choose to deduct this in 2016 vs 2015, as the overall

tax benefit of the deduction will be significantly better in 2016.

To find out what MNP can

do for you, please contact

a MNP office in your

region.

TAX ALERT - CANADA

Flow-through Shares: Much like RRSPs, the deduction from renounced

expenses will be better for your 2016 personal tax return than your 2015return. You may want to acquire flow-through shares in 2016.

Advanced Planning Techniques: There are also many advanced

planning techniques that could be considered to ensure you are not payingmore than required. If you are planning asset purchases, or looking for

ways to remove cash from your operating companies, there are manydifferent ideas that could be considered, such as using holding companies

to hold non-essential corporate assets, etc.

The time for planning is now. If you are going to be impacted by these new tax

rates, now is the time to develop your overall tax strategy. In order to determine

the strategy that works best for you and your family, it is recommended you speak

with your local MNP Tax Advisor today.

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