If you have been following financial news last week, you may have noticed quite a bit of coverage for the highly anticipated 2016 Federal Budget.   The Liberal’s platform is to spend our way to economic prosperity with deficits expected for the foreseeable future.

For me, I’m interested in the budget for the financial impacts of financially conscious people, like the readers of MDJ.  It is pretty clear that the Liberal’s are aiming improve the finances of the middle class.  Already, they have:

  • Reduced the TFSA from $10,000 back to $5,500 (you still get the keep the $10k for 2015);
  • Incomes between $44,700 and $89,401 will see a tax cut to 20.5% from 22% (7% reduction).  To pay for this, those earning $200,000 or more will see a new tax bracket of 33%.

Highlights from the 2016 Budget:

Parents – Canada Child Benefit (CCB)

It appeared to me that the budget was mostly aimed at middle class parents.

Implementation of the CCB will give parents, starting July 2016, a tax-free monthly payment that varies based on family income.

For example, say a family that makes $100k annually, and has two children aged 4 and 7.  Under the old Universal Child Care benefit, the parents would receive $220/month ($160/month for 4 year old and $60/month for 7 year old, all taxable).  Starting July, these same parents will receive about $423/month (tax free).  In this scenario, it appears that under $160,000/year in net family income is where the new system beats the old.  Family income of $200,000+ would have the benefit clawed back to $0.

Important: Note that CCB calculations are based on NET family income.  Which means that tax deductions like RRSP contributions and daycare costs may help in increasing what you receive from CCB.

Here is a CCB calculator to see approximately what your family will get.

But not all is rosy.  Something has to give in order to pay for this.  The old UCCB will be eliminated, along with family income splitting (pension income splitting remains).  But what surprised me is the elimination of the child fitness tax credit ($1,000 per child worth $150/year) and the child arts tax credit ($500 per child worth $75 per year).  Not the end of the world, but in the end, the new benefits will give a slight advantage over the old system.


Before the budget, there was a rumour that government could potentially increase the capital gains inclusion rate from 50% to 66% or even as high as 75%.  For example, if you had a capital gain (profit) of $1,000 from selling a stock or house, then $660 would be included as income (and taxed accordingly).  Thankfully, the inclusion rate stayed at 50%, which in the example above, means $500 would be included as income and taxed at your marginal rate.  More on how capital gains tax works.

The surprise from the budget came from the elimination of the tax exemption when changing mutual funds within corporate class mutual funds.  Before, in this tax efficient mutual fund strategy, investors could change mutual funds within the same family without any tax consequences in non-registered accounts.  I can see some financial planners scrambling a bit try to reduce the financial impact on this new policy.

Employment Insurance

Due to the oil downturn over the past couple years, there are many regions that have been significantly impacted by unemployment.  To help out with this, employment insurance waiting period has been reduced from 2 weeks to 1 week, and benefits extended by an extra 5 weeks in 12 regions that have experienced the most severe increases in unemployment (NL, Sudbury, northern Ontario, northern Manitoba, Saskatoon, northern Saskatchewan, Calgary, northern Alberta, southern Alberta, Whitehorse, Nunavut).  For long-tenured workers in these regions, EI will be extended by an extra 20 weeks (70 weeks total).  One more bonus is that starting 2017, EI premiums will be reduced to $1.61 per $100 income (currently $1.88/$100).


Boosting the middle class is continued with post secondary education.  While the tuition tax credit will remain, the education and text book tax credits will be eliminated.  Instead, Canada Student Grants program will be boosted for low and middle income families (varies by province).  Full time students from low income families will receive $3,000 (vs. $2000), and students from middle income families will receive $1,200 (vs. $800). More details on the budget here.

Those were the highlights that caught my eye in the budget.  Am I missing anything?


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  1. Le Barbu on March 30, 2016 at 1:23 pm

    For our family, the bigest downturn is the cancellation of income splitting. To improve our quality of life, we decided years ago to have one of us working less (not working on monday’s, reduced hours etc) but this mean it bring 30k$ while the other income is 80k$. Why should we pay 1,000$ more in taxes than another household earning 55k$ each for the same 110k$ (gross) total? All of the benefits and credits are based on the household total income tought!

    The bottom line is we are 2k$/year advantaged from the former budget and will use this break to invest more. I dont care about the deficit blah, blah, blah since I did not voted for the Liberals. I just make my own decisions within the policies in place wathever they are.

    • FrugalTrader on March 30, 2016 at 2:23 pm

      I know how you feel, we also benefit from the income splitting policy. Note though that even though it’s cancelled going forward, you can still claim the tax credit for 2015 tax year.

      • Le Barbu on March 30, 2016 at 3:05 pm

        I know, for 2015 this policy gaves us 1,285$ back and the 1.5% tax reduction for 2016 will only bring back about 300$. Thats why said we’ll “loose” 1,000$ in the process.

        On the other end, our SM does pretty well with now with a 5,280$ dividends/year!

  2. Le Barbu on March 30, 2016 at 1:30 pm

    I forgot to mention that we have 2 children, 12 and 9 years old and that’s the main reason why we are still ahead with the new budget…

  3. Cold Truth on March 30, 2016 at 3:16 pm

    The problem is the belief that public spending can simply fix an economy with poor growth. Some quick numbers to put things in perspective:
    Total federal and provincial spending in 2010 was about $625 billion. (Add up the first 18 table entries).

    Total Canadian GDP in 2010 was $1.6 trillion in USD, adjusted to CAD for that year is $1.725 trillion.

    Thus total public federal and provincial spending was about 36% of GDP, and every extra $1 billion spend represents less than 1/1000th of a percent of the GDP.

    It should be obvious that adding a few tens of billions of dollars in spending can’t magically fix the economy, but can have a big impact on future revenues that have to service that debt.

    • Aram on April 1, 2016 at 4:18 pm

      Public spending also can be done wisely. If they spend on projects that had to be done anyway, and if they take advantage of higher unemployment and negotiate cheaper labour costs, then they better do it now than later.

      I am not saying that they will spend wisely, but they could.

  4. Aram on March 31, 2016 at 1:59 pm

    Thanks for going through all that stuff and summarizing the changes for us! That was very helpful, and actually regular reviews of important economic/financial news and events would be very nice addition to the blog – what do you think? Would you have time for that?

  5. Emily on March 31, 2016 at 4:16 pm

    Thanks for the breakdown! I am disappointed about the Child Fitness, and Arts credits. It may not have been much but it felt good being able to claim them. Those expenses add up to a pretty big amount over the year!

  6. Peter on April 5, 2016 at 12:02 am

    The changing of mutual funds in the same mutual fund family is new to me. I have a non registered account but have no money in it. All monies saved go to the RRSP. How long has this been going on? Changing a Canadian Equity fund after it has gained 20% to a money market fund does not trigger a tax situation. But don’t you have to eventually cash that money market fund out?

    • FrugalTrader on April 5, 2016 at 8:45 am

      Peter, note that this new rule only applies to Corporate Class mutual funds.

  7. Grammie on April 10, 2016 at 4:26 pm

    Corporate class mutual funds were a nifty way to move from one type, for example, equity, into another, such as small cap, under the umbrella of the corporate class. So one avoided paying capital gains, and the proceeds were kept entirely. I have been investing since I was 10, and this was a pretty neat way of keeping money in my account. I’m surprised it took the “Revenuers” so long to nix it. I no longer use mutual funds, except to park money in money markets. I hate paying someone else an annual fee to lose my money. I can do that myself! Buying banks and utilities has served me well since the 80’s.

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