2019 Tax Changes

Starting January 1, 2019, there are a few changes to the way Canadians will be taxed.

Key Changes

Small Business Tax RateThe effective tax rate will decrease from 10% to 9% starting January 1, 2019.
Canada Workers BenefitStarting with the 2019 tax year (next tax filing year), low income Canadians will qualify for an increased benefit. The previous Working Income Tax Benefit will be replaced by the Canada Workers Benefit. This will be an automatic application and allow more money to flow back to low income earners.
Enhanced Canadian Pension PlanThere will be a shift from Tax Credit for employee paid CPP contributions to a Tax Deduction. A tax deduction reduces the amount of income that is subject to income tax, but a tax credit reduces the amount of tax owing. In the end, a tax deduction is better and leaves more money in your pocket because if you have no amount owing, you cannot have a tax credit.
Passive Investment/IncomeEarlier in 2018, the new Budget was passed that limited the amount a private corporation can hold as passive income/investment before increased taxes are applied. This limit is now $50,000. What is passive income? Simply put, passive income is income generated with little to no work; such as rental income, investments, etc. The $50,000 limit means that a private corporation is allowed to have up to $50,000 as passive income under the small business tax rate. Anything over that amount will be taxed at a higher rate.
Acquiring AssetsStarting November 20, 2018, businesses are allowed to write off 100% of the purchase of new machinery and equipment in the year they are put to use (as long as they are used in the manufacturing and processing of goods). Businesses are also allowed to write off 100% of the full cost of specified clean energy equipment. And lastly, the introduction of the Accelerated Investment Incentive. This allowed businesses of all sizes to write off a larger portion of the asset in the year the investment was made.

These new tax measures will see businesses keep a larger portion of their hard earned dollars. Along with the above mentioned breaks, there are a few other minor adjustments being made. The Dividend Tax Credit will be adjusted to compensate for the lower small business tax rate. Other changes include: removal of the allowances for members of legislative assemblies and certain municipal officers, phase-out of accelerated capital cost allowance for mining, reclassification of expenditures relating to drilling or completing a discovery well to Canadian Development Expenses instead of Canadian Exploration Expenses, reclassification of expenses renounced to flow-through share investors for eligible small oil and gas corporations (no longer be able to treat the first $1 million of the Canadian Development Expenses as Canadian Exploration Expenses when renounced to shareholders under a flow-through share agreement), elimination of the tax exemption for insurers of farming and fishing property, and finally, HST rule changes for investment limited partnerships – aligns the rules with the GST/HST treatment of other investment plans such as mutual funds, segregated funds and pension plans.

Other Positive Changes

Some other positive changes for personal taxes is the increase of the limit to invest in a TSFA from $5,000 to $6,000. Other increases are to the Canadian Child Benefit (almost a $200 increase in the amounts you can receive) along with an increase in the amount you can earn before a phase-out begins.

The changes are designed to spur spending, saving, and growth. We will see if this actually happens.