What will Liberal platform on income tax, child benefits mean for Canadians?

Bigger tax breaks and better benefits for middle-class families were just two of Justin Trudeau's campaign promises. But what does that mean for Canadians in various income brackets? 

Tammy Johnston, a Calgary-based personal finance educator and author of the Financial Foundations series, which are books designed to teach children about financial issues, talked to the Calgary Eyeopener on Thursday to help demystify the new government's promises.

• New Liberal government: Where does it get started?

At the core of the Liberal platform was the promise to immediately help the middle class by reducing the tax rate from 22.5 per cent to 20 per cent for persons earning between $44,700 and $89,401 a year. A new tax bracket for individuals who earn more than $200,000 was also expected, and they'll pay 33 per cent tax on their income.

Here are answers from Johnston to some of the questions taxpayers likely have.

Q: Who's going to pay more, and who's going to pay less in income tax?

A: About 99 per cent of the population will see a slight drop in their taxes. According to 2013 statistics, of 26.1 million taxpayers, less than 340,000 Canadians individually earned more than $200,000 a year. Under the Liberal party plan, only those individuals who earned above $200,000 will pay more taxes.

Q: The Liberals said the annual contribution limit on Tax-Free Savings Accounts (TFSAs) would likely fall back to $5,500 from the current $10,000 starting in 2016. What's happening with that?

A: About 62 per cent Canadian don't contribute to TFSAs and only seven per cent max them out. For example, if you're an adult 24 years or older, your contribution limit for this year is $41,000. It works the same way as your RRSP contribution limits. Next year, that number will be $46,500. It's very unlikely that the Liberals will roll back the additional $4,500 that was allowed this year. In the worst-case scenario, if you did put in the extra $4,500,you can take it out and there will be no tax implications.

Q: Does the new government plan to get rid of TFSAs or just change it?

A: They've specifically said they are going to get rid of it. We just don't know what they are going to do for the 2015 tax year.

Q: Another contentious issue is the end to income splitting. What does that mean for families?

A: For most families it won't mean anything. According to the Parliamentary Budget Office, only 15 per cent of Canadians benefited from income splitting. The big complaint was about pension income splitting, which is not being touched at all, so seniors are not going to be affected. The other positive thing to affect a majority of Canadians is the Liberals' plan to introduce a tax-free Canada Child Benefit. Under the Harper government it was called the Universal Child Care benefit and was taxable. With that, a majority of people are going to have more money in their family budget than expected with the Harper government.

Here are three income scenarios and what they mean to various income earners.

• Combined family income of $200,000 with two children - Making a few assumptions, in most families with kids there is typically a 70/30 income split because one parent earns more, while the other does more duties in the home. Assuming their income is $250,000 a year, a family like this will see pay $1,126 less in federal taxes. Because they exceed the $200,000 mark for family income, they won't be eligible for the new Canada Child Benefit.
• Average Calgary family earning a combined income of $98,000 - They'll save $379 in federal taxes but will gain about $6,300 in the Canada Child Benefit. They should see an increase in $500 or so in their monthly budget.
• Average Canadian family with a combined income of $75,000 - The federal tax savings annually will be $117. But they'll receive $7,850 annually from the Canada Child Benefit.