Major Tax Changes For 2019

A number of changes, some with significant impact on profitable Small Businesses, came into effective on January 1, 2019. While some of these changes will hit you in the pocketbook, but there are few changes that will put more money in your pocket depending on your annual income. 

Canada Pension Contribution

As of January 1, contribution to Canada Pension Plan increased form 4.95 percent to 5.10 percent for earnings of up to $57,400 with the exemption level remaining at $3500.00 annually. Depending on whether you are self -employed or employed it could set you back as much as $161.70 or half as much, respectively. This increase in premium will continue on a graduated basis until 2023 when the rate reaches 5.95 percent. While at the first glance it may appear as another increase in taxes but it actually enhances the Canada Pension Plan benefit over time, ultimately resulting in a higher Canada Pension income.

Employment Insurance Premium

The government has offset the increase in CPP contribution rate by reducing the Employment insurance premium from 1.66 percent to 1.62 percent, effective January 1, 2019. Such reduction can save you a maximum of $12.75 annually depending on your employment income level.

Canada Workers Benefit

For 2019 and subsequent taxation years, the government has introduced the Canada Workers Benefit (CWB), an enhanced version of the Working Income Tax Benefit (WITB). The WITB is a refundable tax credit that supplements the earnings of low income workers and improves work incentives for low-income Canadians.

Starting in 2019, the amount of the CWB is index to inflation rate, and will be equal to 26% of each dollar of earned income over $3,000, to a maximum credit of $1,355 for single individuals without children and $2,335 for families (couples and single parents). The maximum credit is reduced by 12% of adjusted net income over $12,820 for single individuals without children and $17,025 for others.  However, as 2019 is the eligibility year, low income workers will have to wait until 2020 to get the boosted benefit.

Small business tax changes

As of January 1, 2019, the small business tax rate for CCPCs is going down from 10 to 9 per cent. A move long promised by the Liberal government. Such move is observed by many as an attempt to placate the small business community angered by new rules relating to passive income.

Passive income includes regular earnings from a source other than by an employer or contractor. Essentially, passive income can come from two sources: rental property or a business in which generating income does not require active participation, such as receiving interest on unemployed funds. Funds that sit idle within an incorporated business without being reinvested in the core business or used to cover operating expenses are subject to the new passive income rules.

There is no doubt that the intention behind the new passive income rules is to generate additional revenues for the government by taxing businesses proportional to their overall size and income. While the new rules should not typically affect start-ups and newer small businesses however, it should, at least in theory encourage business owners to reinvest their passive earnings into their businesses, or into hiring more people, rather than leaving it sit idle.

Most small incorporated businesses are federally taxed at 9% on the first $500,000 of business earnings. However, starting in January 2019, if those businesses earn in excess of $50,000 in passive income , some of their earnings will be subject to much higher corporate tax rate, depending on how far over their passive income exceeds the $50,000 limit.

Here’s how it works; for every $1 that the passive income of a business exceeds the $50,000 limit, the income subject to the low tax rate of 9% gets reduced by $5. For example, if a company’s passive income is say $85,000 then only $325,000 of its income is taxed at 9% with any excess taxed at substantially higher rate. Accordingly, if company’s passive income exceeds $150,000, then its entire active income will be federally taxed at unreduced corporate rate.

Higher prices at the pump

Possibly the most politically charged tax change coming in 2019 is Ottawa’s new carbon pricing system. In jurisdictions that don’t have carbon pricing mechanisms of their own, Ottawa will levy a tax on fossil fuels of $20 per tonne of greenhouse gas emissions starting in 2019, rising by $10 each year to $50 a tonne by 2022.

Emissions over set limits from large, industrial emitters in provinces without carbon pricing systems will fall under the federal government’s carbon pricing rules starting in January 2019. For consumers, the cost of fossil fuels and the services they support will start going up in April.

The government estimates that, once the carbon tax is in place in the provinces where it will be imposed, the cost of a litre of gasoline will go up 4.42 cents, natural gas will go up 3.91 cents per cubic metre, and propane will go up 3.10 cents a litre.

Residents of provinces where new carbon tax is imposed will get direct rebates to offset the increased costs. The amount will vary based on the province and the number of people in the household. In Ontario, for example, the rebate for the average household (defined as 2.6 people) would be about $300 a year, or about $248 in New Brunswick, or $336 in Manitoba, or $598 in Saskatchewan.

Other tax and price changes in 2019

Postage stamp prices are set to increase.

  • $1.05 for a single domestic letter mail stamp
  • $1.27 for a U.S. letter mail stamp
  • $2.65 for an international stamp

In 2019, many personal income tax credit and benefit amounts are being indexed to inflation and:

  • The basic personal amount rises to $12,069
  • The annual contribution limit to tax-free savings accounts will increase to $6,000 from $5,500.

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