On October 19, 2015 Canadians went to the polls and issued a clear verdict that they are ready for real change now. The central promises of the new Liberal Party’s platform range from deficit spending on major infrastructure projects, to revamping child care benefits, and changes to the income tax structure. We break down the bottom line implications to your finances and financial goals below.
One of the Liberal’s key messages was to reduce taxes for middle income families, and increase it for higher income earners. We will see this in a 1.5 per cent reduced marginal tax rate on income between $44,701 and $89,401 (up to $670 in tax savings), and a 3 per cent increase on income over $200,000. Middle income families with children under 18 will also receive up to $2,500 more in child care benefits while higher income families will receive less. In addition, income splitting will be eliminated for families with children under 18.
The new government will also reduce Employment Insurance (EI) contributions to $1.65 from $1.88 per $100 and phase in an expansion of Canada Pension Plan (CPP) contributions for both employers and employees in line with the current proposal by Kathleen Wynne’s Ontario Liberals.
Bottom line: If your income falls below $200,000, and you have children under the age of 18, you should have a slightly higher take home pay. But if your income is much different than your spouse’s, you will not receive the same tax benefit of splitting your income that you received under the Conservative government.
During the campaign, all parties recognized that not having sufficient retirement savings is a major concern for many Canadians. As mentioned above, the Liberal government’s plan to address this issue is to gradually increase the core CPP. The Liberals have also committed to reduce the Tax Free Savings Account (TFSA) limit back to the $5,500 level it was before the Conservatives increased it to $10,000 this year.
Retirement is going to be major challenge for Canadians – we are living longer, we face higher health care costs, and we’re in a lower investment return environment. While an increased pension from the CPP will slightly improve your retirement income, the benefit will very likely only cover a small component of your retirement income. At the end of the day, in order to achieve the standard of living you want in retirement, the responsibility still rests on your shoulders. Define your retirement income needs, factoring in what will be earned from CPP, build a plan on how to get there, and get started as early as possible.
Post-secondary education costs are rising significantly at about 4 per cent per year and students are quickly becoming burdened with student debt. The Liberal government has issued a few changes to address this problem. For students, student loans will not have to be repaid until the graduate is earning $25,000 per year. From a parent’s standpoint, an increase to the maximum Canada Student Grant to $3,000 per year for full-time students and to $1,800 per year for part-time students will help lower income households afford tuition.
In order to get ahead, our children need more and more education to acquire the skills necessary to be successful. Leaving post-secondary education with a heavy debt burden is rapidly become a significant problem. For parents, the message is clear – the more you can save to fund your children’s post-secondary education, the better chance they have of getting a good start in an ever increasing competitive economy.
Start saving early, added government benefits like the new child care benefit are a great option for Registered Education Savings Plan (RESP) contributions.
The message is the same
In a nutshell, there were no changes that will have a significant impact on your saving or financial goals. Election promises are always to be taken with a grain of salt. What gets done is generally much different than what is promised for various reasons.
The government term is generally much shorter than your time horizon to get to your goals. Therefore, it’s of utmost importance to focus more on your financial goals, making sure you have a plan in place to get there, and executing that plan with discipline. Maximizing your savings, holding a well-diversified portfolio aligned with your goals, and lowering your costs of investing is the way to go.
Invisor offers Canadian investors personalized investment management solutions at a fraction of the cost of traditional advisor models, without requiring any minimum investment amounts. Get started now to tell us a little about yourself and your goals, and we’ll find an investment solution just right for you.
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