Man holding a card with a text Tax Reforms.

Tax season is upon us again and with that in mind, here is a refresher of recent changes you may have missed and what you can expect in 2019.

Personal Taxes

  • Increase in CPP Contributions: As part of the government’s overhaul of the Canada Pension Plan, contributions will increase in 2019 to 5.1% of pensionable earnings. In 2019, CPP deductions for employees will increase by $155 and $310 for self-employed individuals compared to 2018. Workers will see a slightly reduced paycheque, while business will experience a payroll tax increase compared to 2018.
  • The Carbon Tax: Beginning April 1, 2019 there will be a 4.42cents/L hike on gasoline and 3.91 cents/CM increase on natural gas, increasing gradually. This tax is applicable in certain provinces including on Ontario. About 90% of the tax will be returned directly to individuals. Find out more at Ontario and Pollution Pricing.
  • Tax increase on dividends: There is no such thing as a free tax lunch, as the tax on non-eligible dividends increases by about 1% to match the decrease in corporate taxes.
  • Tax breaks for low-income workers, especially in Ontario:
    • The Low-Income Individuals and Families Tax (LIFT) Credit essentially eliminates Ontario tax for employed individuals earning less than $30,000 per year. The credit is reduced once the individual’s income exceeds $30,000 (or the family’s income exceeds $60,000) and eliminated completely when income exceeds $38,500 (or the family’s income exceeds $68,500).
    • The Canada Workers Benefit (previously Working Income Tax Benefit) will be assessed automatically by CRA beginning in 2019, which means eligible individuals will receive it even if they don’t know to claim it.
  • TFSA limit is now indexed to inflation. The 2019 limit is $6,600.

Business and Corporate Tax

  • Small business rates now 12.5%: The combined provincial and federal corporate tax in Ontario has decreased to 12.5% from 13.5% in 2018 for the first $500,000 of active business income. However, the rate effectively increases for corporations with $50,000 of non-business income (see below).
  • Faster write-off for capital assets and equipment: Federal proposals effectively triple the first-year capital cost allowance for capital assets, while manufacturing and processing, and clean energy equipment are fully expensed.
  • Significant increase in tax for businesses with passive income: Two important changes will take effect in 2019. Considerable, planning is needed to reduce the impact of these measures.
    • Loss of Small Business Deduction: The result of this measure is up to $30,000 of additional tax. Private corporations and their associated companies with passive income (rents, interest, portfolio investments, etc.) over $50,000 will lose their Federal small business deduction $5 for every $1 of passive income. At $250,000 of passive income, the entire Federal small business deduction is lost.
    • RDTOH and Eligible Dividends: Corporations will not be able to recover refundable dividend tax when paying Eligible Dividends. Eligible dividends are taxed at a lower rate than regular dividends. As a result, this measure will increase the total tax of some corporations and their shareholders.

Canada Revenue Agency

Over $1 billion of federal money flowing to the CRA since 2016 is resulting in a significant increase in CRA audit activity.

  • Corporate expense reviews: Following successful review projects of Professional Fees, and Trucks and SUVs, the CRA is now reviewing Repairs and Maintenance accounts and is expected to begin reviewing automobile expenses. Meals and entertainment and other high-risk and often abused line items are sure to come.
  • Trust and Estate audits: If you are claiming a Capital Gains Deduction for small business shares sold by a Trust, you can expect an audit. What the government was unsuccessful in doing legislatively, is now doing administratively.

For more information on recent CRA activity see our recent blog posts:

  1. CRA beefs-up investigations into personal and business taxes
  2. CRAs new truck and SUV project and reviews of cell phone expenses

In case you missed it:

For significant 2017 and 2018 changes, you may have missed our previous blog:

Tax changes are coming – How will they affect you.

Disclaimer: This article is intended for educational and informational purposes only. It is not intended in any way whatsoever to provide tax advice. The reader should be aware that certain legislative changes and government announcements have been proposed and are subject to change. None of the persons involved in the preparation of this article accepts any responsibility for its contents or the consequences that arise from its use.

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