The new federal government has proposed changes that will affect your personal finances next year. This edition of weekend reading looks to explain these changes and how they might impact your wallet. Let’s get to it:
Minimum Down Payment Increase
This week the Liberals introduced changes for minimum down payments on a home purchase. The new rules, which take effect February 16th, 2016, increases the minimum down payment requirement from 5% to 10% on the portion of a home purchase above $500,000. Homes priced at $1M and above still require a 20% down payment. Here’s Preet Banerjee with a great video explanation and an example:
Still not clear? Here’s MoneySense’s Romana King on what the new 10% minimum down payment means for home buyers.
The rules are clearly aimed at buyers in overheated markets like Toronto and Vancouver, however, according to this article, the narrow reach of these new rules won’t do much to cool housing prices.
TFSA contribution limits
One of Justin Trudeau’s campaign pledges was to reduce the TFSA contribution limit back to an indexed-to-inflation $5,500 per year. After much confusion and speculation of how this would be rolled-out, this week, the Liberals confirmed that 2015 TFSA contribution limit would remain at $10,000 and then return to $5,500 in 2016. Again, here’s Preet Banerjee with the video explanation on the new (old) limits:
But don’t rush to take advantage of this year’s $10,000 TFSA limit. Rob Carrick explains how the $10,000 limit for this year will remain in place forever; meaning you can carry that room forward into future years, if unused.
This Maclean’s article says the Liberal changes to TFSA contributions were actually historic because, by rolling back TFSA contribution limits, the federal government broke a nearly six-decade trend of which there had been zero reductions to annual contribution room in an RRSP or TFSA.
Despite protests and petitions, the TFSA roll-back will proceed as planned. The Financial Post’s Garry Marr explains why that’s not necessarily a bad thing.
Family Tax Cut eliminated
Designed by the previous Conservative government as a limited form of income splitting, the Family Tax Cut allowed families with children under 18 to save when one spouse earned considerably more than the other. This credit allowed a higher earning spouse to assign up to $50,000 from his or her tax return to the lower-income spouse’s return and claim up to $2,000 in tax savings.
The Family Tax Cut still applies for the 2015 tax year. In 2016, the government will announce its plan to end the program and replace it with a new child benefit plan.
Canada Child Benefit Plan
During the 2015 Canadian Federal Election, the Liberal Party of Canada proposed the Canada Child Benefit plan (CCB) which would replace a number of existing child care benefit programs. Here’s Preet Banerjee to explain how it was proposed to work, and what it could mean to your family:
New Federal Income Tax Bracket
Billed as a middle-class tax cut, the Liberal government will reduce the tax rate on income between $44,700 and $89,401 to 20.5%, from 22%. It will also introduce a new tax rate of 33% on income above $200,000, representing the top 1% of income earners.
Take it away, Preet:
As a single-income family the obvious changes that will impact our finances are the middle-class tax cut and the child benefit plan. Both changes should positively impact our finances next year. We’re not too fussed on the reduction to the TFSA contribution limit, as we weren’t planning to start seriously taking advantage of this savings vehicle until late 2016, early 2017 (once our line of credit and car loan are paid off).
How will these new rules impact your wallet and financial plans for 2016?