2016 Tax Updates for Canadian Payroll

With the New Year now upon us, we thought it would be helpful to start a new budget post to share all of the changes that impact Canadian Payroll. We’ll update this throughout 2016 whenever there is something new announced from the Federal or Provincial governments.

So make sure you subscribe for updates, if you haven't already.

Federal and Provincial Tax Updates for Canadian Payroll in 2016

This post will keep you informed when changes are scheduled to take effect and provide helpful links so you have a quick reference to the best source of information in each jurisdiction and you can be sure you're compliant and ready to meet new requirements.

Federal Updates


On Monday, December 7, 2015 the Federal Finance Minister Bill Morneau announced changes to the federal income tax rate for the middle income tax bracket and a new 33% tax bracket for earnings over $200,000.00.

As a result, the changes to the federal personal income tax withholding rates, effective on January 1, 2016, are:

Annual taxable income Withholding Income Tax Rate
*Effective January 1, 2016
Up to $45,282 15% (no change)
On income between $45,282 and $90,563 20.5% (reduced from 22%)
On income between $90,563 and $140,388 26% (no change)
On income between $140,388 and $200,000 29% (no change)
On income over $200,000.00 33% (new tax bracket and rate)


Another change the government announced was that the TFSA maximum will be decreased from $10,000 to $5,500 effective January 1, 2016.

This change will not affect TFSA contribution limits for 2015.

CRA Updates


The T4127—JAN Payroll Deductions Formulas for Computer Programs—103rd Edition—effective January 1, 2016 is now available and can be referenced here.

In addition to the new federal rates, the indexing rates for Alberta, New Brunswick, Northwest Territories, Nunavut, Saskatchewan and Yukon have been set at 1.3%. British Columbia has set its rate at 0.9%, Newfoundland and Labrador at 0.4%, and Ontario at 1.5%.

The Québec (provincial) rate has been set at 1.09% however, in order to arrive at the new basic exemption amount, employers must take the old exemption amount of $11,425 using the new rate. Revenu Québec (RQ) rounds the amount to the nearest $5.00, resulting in a basic exemption amount of $11,550.

Manitoba, Nova Scotia and Prince Edward Island will have no indexing applied for 2016.

The basic exemption amounts and indexing rates are as follows:

Province or Territory Indexing
Basic Exemption TD1 Form / TP-1015.3-V
Federal 1.3% $11,474 Federal TD1
Alberta 1.3% $18,451 Alberta TD1
British Columbia 0.9% $10,027 British Columbia TD1
Manitoba No indexing for 2016 $9,134 Manitoba TD1
New Brunswick 1.3% $9,758 New Brunswick TD1
Newfoundland and Labrador 0.4% $8,802 Newfoundland and Labrador TD1
Nova Scotia No indexing for 2016 $8,481 Nova Scotia TD1
Northwest Territories 1.3% $14,081 Northwest Territories TD1
Nunavut 1.3% $12,947 Nunavut TD1
Ontario 1.5% $10,011 Ontario TD1
Prince Edward Island No indexing for 2016 $7,708 Prince Edward Island TD1
Québec 1.09% $11,550 Quebec TP-1015.3-V
Saskatchewan 1.3% $15,843 Saskatchewan TD1
Yukon 1.3% $11,474 Yukon TD1

Looking for the 2015 Budget changes? Click here.

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