2019 Federal Budget

2019 Federal Budget

The 2019 budget is titled “Investing in the Middle Class. Here are the highlights from the 2019 Federal Budget.

We’ve put together the key measures for:

  • Individuals and Families

  • Business Owners and Executives

  • Retirement and Retirees

  • Farmers and Fishers

Individuals & Families

Home Buyers’ Plan

Currently, the Home Buyers’ Plan allows first time home buyers to withdraw $25,000 from their Registered Retirement Savings Plan (RRSP), the budget proposes an increase this to $35,000.

First Time Home Buyer Incentive

The Incentive is to provide eligible first-time home buyers with shared equity funding of 5% or 10% of their home purchase price through Canada Mortgage and Housing Corporation (CMHC).

To be eligible:

  • Household income is less than $120,000.

  • There is a cap of no more than 4 times the applicant’s annual income where the mortgage value plus the CMHC loan doesn’t exceed $480,000.

The buyer must pay back CMHC when the property is sold, however details about the dollar amount payable is unclear. There will be further details released later this year.

Canada Training Benefit

A refundable training tax credit to provide up to half eligible tuition and fees associated with training. Eligible individuals will accumulate $250 per year in a notional account to a maximum of $5,000 over a lifetime.

Canadian Drug Agency

National Pharmacare program to help provinces and territories on bulk drug purchases and negotiate better prices for prescription medicine. According to the budget, the goal is to make “prescription drugs affordable for all Canadians.”

Registered Disability Savings Plan (RDSP)

The budget proposes to remove the limitation on the period that a RDSP may remain open after a beneficiary becomes ineligible for the disability tax credit. (DTC) and the requirement for medical certification for the DTC in the future in order for the plan to remain open.

This is a positive change for individuals in the disability community and the proposed measures will apply after 2020.

Business Owners and Executives

Intergenerational Business Transfer

The government will continue consultations with farmers, fishes and other business owners throughout 2019 to develop new proposals to facilitate the intergenerational transfers of businesses.

Employee Stock Options

The introduction of a $200,000 annual cap on employee stock option grants (based on Fair market value) that may receive preferential tax treatment for employees of “large, long-established, mature firms.” More details will be released before this summer.

Retirement and Retirees

Additional types of Annuities under Registered Plans

For certain registered plans, two new types of annuities will be introduced to address longevity risk and providing flexibility: Advanced Life Deferred Annuity and Variable Payment Life Annuity.

This will allow retirees to keep more savings tax-free until later in retirement.

Advanced Life Deferred Annuity (ALDA): An annuity whose commencement can be deferred until age 85. It limits the amount that would be subject to the RRIF minimum, and it also pushes off the time period to just short of age 85.

Variable Payment Life Annuity (VPLA): Permit Pooled Retirement Pension Plans (PRPP) and defined contribution Registered Retirement Plans (RPP) to provide a VPLA to members directly from the plan. A VPLA will provide payments that vary based on the investment performance of the underlying annuities fund and on the mortality experience of VPLA annuitants.

Farmers and Fishers

Small Business Deduction

Farming/Fishing will be entitled to claim a small business deduction on income from sales to any arm’s length purchaser. Producers will be able to market their grain and livestock to the purchaser that makes the most business sense without worrying about potential income tax issues. This measure will apply retroactive to any taxation years that began after March 21, 2016.

To learn how the budget affects you, please don’t hesitate to contact us.

RRSP Tax Savings deadline – March 1, 2019

RRSP Deadline: March 1, 2019

This is the deadline for contributing to your Registered Retirement Savings Plan (RRSP) for the 2018 tax filing year. You generally have 60 days within the new calendar year to make RRSP contributions that can be applied to lowering your taxes for the previous year.

If you want to see how much tax you can save, enter your details below!

Passive Investment Income Limit

Morneau’s federal budget announced earlier this year informed us how the government will treat passive income in a Canadian Controlled Private Corporation. (CCPC) The government’s main concern was that under the current rules a “tax deferral advantage” exists since tax on active business income is usually lower than the top personal marginal tax rate. Therefore if the corporate funds were invested for a long period of time, shareholders might end up with more after-tax amount than if it was invested personally.

 

Limiting Access to the Small Business Tax Rate

A key objective of the budget is to decrease the small business limit for CCPCs with a set threshold of income generated from passive investments. This will apply to CCPCs with between $50,000 and $150,000 of investment income. It reduces the small business deduction by $5 for each $1 of investment income which falls over the threshold of $50,000 (also known as the adjusted aggregate investment income). This new regulation will go hand in hand with the current business limit reduction for taxable capital.

 

The time to act is now, since these changes will be effective January 1, 2019, a discussion and plan should be prioritized now, since 2018 will be the “prior year” of 2019. To avoid the reduction of income eligible for the small business tax rate, business owners need to minimize or keep the amount below $50,000 of the “adjusted aggregate investment income” (AAII) in 2018. 

 

We’ve listed some solutions on how to do this:

 

1)   Corporate Owned Insurance: Exempt life insurance does not produce passive investment income unless there is a disposition. Put a portion of the corporation’s passive investments into a life insurance policy and reduce passive investment income and limit the erosion of the small business limit. Insurance concepts:

●     Insured retirement program: Provide additional retirement funding through transferring excess corporate funds into whole life or universal life insurance. The funds inside the policy grow “tax free” to create significant cash value. At some point when there is a need for cash, the policy is pledged as collateral for a bank loan. The bank loan doesn’t need to be repaid until the life insured dies and the death benefit is used to repay the loan. Any remaining death benefit is paid out.

●     Estate bond: Transfer corporate wealth to the future generation by utilizing whole life or universal life insurance. Essentially replace taxable investment with life insurance, increase funds for a future generation upon death, reduce tax and create a strategy to move funds out of the corporation tax free (through the Capital Dividend Account.)

●     Corporate held Critical Illness with Return of Premium: Purchase corporate owned critical illness, since it doesn’t produce any investment income.

 

2)   Pay enough salary/dividends to maximize RRSP and TFSA Contributions: A salary of $145,722 will allow the max 2018 RRSP contribution is $26,230 (18% of $145,722). Make sure you also pay enough salary/dividend to maximize your annual $5,500 TFSA contribution.

3)   Individual Pension Plan (IPP): The corporation contributes to the IPP and income earned in the IPP doesn’t belong to the corporation. This should only be considered when the AAII is over $50,000.

4)   Deferred Capital Gains: Capital gains are 50% taxable and are only 50% included in the AAII.

 

Talk to us, we can help you figure out the best solution for your unique situation.

 

Ontario Budget 2018

The 2018 Ontario budget features a number of new measures and billions of dollars of enhanced spending across the spectrum, as announced by the province’s Finance Minister, Charles Sousa. Read on for some of the key proposals.

Personal

Eliminate Surtax

A new sliding scale for personal income tax will be introduced, with seven personal income tax rates which will be applied directly to taxable income, in an attempt to eliminate Ontario’s surtax. The province estimates that approximately 680,000 will pay less tax as a result.

Free Tuition

Access to further education will be income linked, with those families with an income of less than $90,000 per year receiving free tuition and families with an income of between $90,000 and $175,00 per year receiving financial aid for tuition costs.

Free Pre-School Child Care

Effective in the Fall of 2020, children aged two-and-a-half until they are eligible for kindergarten can receive free licensed child care. 

New Ontario Drug and Dental Program

For those without workplace benefits or not covered by OHIP+, this program offers up to 4.1 million Ontarians a benefit that pays up to 80% of expense up to a cap of $400 for a single person, up to $600 for a couple and $50 per child in a family with two children, regardless of their income.

Free Prescription Drugs

The budget announces the introduction of free prescription drugs for those aged 65 or older, resulting in an average of $240 per year in savings per senior.

Charitable Donation Tax Credit

The non-refundable Ontario Charitable Donation Tax Credit will be tweaked to increase the top rate, remaining at 5.05% for the first $200 but increasing to 17.5% for anything above $200.

Seniors’ Healthy Home Program

$750 is offered to eligible households with seniors of 75 years of age or older to help them to care for and maintain their residence.

Corporate

R&D Tax Credit

The budget introduces a non-refundable tax credit of 3.5% on eligible costs relating to R&D, or an enhanced rate of 5.5% for eligible expenditures of $1 million plus. Note that this enhanced rate would not be payable to corporations where eligible R&D expenditures in the current tax year are less than 90% of eligible R&D expenditures in the tax year before.

Innovation Tax Credit

The existing Ontario Innovation Tax Credit will see changes to its credit rate in the following way:

·      If a company has a ratio of R&D expenditures to gross revenues of 10% or less, they will continue to receive the 8% credit.

·      If their ratio is between 10% and 20%, they will receive an enhanced credit rate of between 8-12%, calculated on a straight line basis.

·      If their ratio is 20% or more, they will receive an enhanced credit rate of 12%.

Ontario Interactive Digital Media Tax Credit

Eligibility to receive this tax credit will be broadened to include film and television websites.

Tax Lines to look out for

It’s that time of year again, when many of us sit down to complete our income tax return and hope that we have done enough preparation to ensure a smooth and speedy process. Unfortunately, there are a number of complexities that can cause us problems – here are a few of the most common issues experienced by individuals when submitting their tax returns:

Medical Expenses

Expenses relating to medical expenses such as prescriptions, dentures and many more can be claimed for a non-refundable tax credit. You should also be aware that you can claim for yourself, your spouse or common law partner and any dependent children under the age of 18. You can also claim for certain other individuals whom you can clearly evidence are dependent on you (and the list of such individuals has recently been widened and can include grandparents, uncles, aunts, nieces and nephews).

Charitable Donations

You can claim tax credits for qualifying charitable donations that you made in 2017, though they are subject to an annual limit at 75% of your net income. You may also be eligible for a provisional donation tax credit. To receive such credits, you must supply a charitable donation receipt as evidence of your donation.

What’s more, there is a new formula for calculating the federal tax credit, depending on the value of donations. This is as follows:

1.    15% of the first $200 of donations

2.    33% of donations equal to the lesser of the amount of taxable income over $202,800 or the amount of donations over $200

3.    29% of total donations not included in the two stages above.

Public Transit Pass

Although this credit ended in the 2017 federal budget, it can still be claimed for the time period of January 1 – June 30, 2017. There are a range of eligible passes, including passes allowing unlimited travel within Canada, short term passes allowing unlimited travel for five days of which at least 20 days’ worth are purchased during a 28 day period and electronic payment cards.

Interest Expense and carrying charges

Interest on money borrowed to earn business or investment income is generally deductible, however interest expenses incurred on money borrowed to generate a capital gain is not tax deductible.

Carry forward information

Take note of the notice of assessment from your previous year’s tax return as it will contain important information that will apply to the submission of your current year’s return, such as your RRSP contribution limit and any carry-forward amounts.

Remember that you may be required to submit receipts alongside your electronic return at a later date, as requested by the CRA.

Child care expenses

Child care expenses include payments made to caregivers, nursery schools, day care centres and camps and other similar institutions. The deduction is usually best claimed by the lower earning spouse.

The deduction is the lesser of the following three:

·      the total qualifying child care expenses which have been incurred

·      $8,000 for each child under the age of 7, as well as $5,000 for each child between 6 and 16 and $11,000 for each child for whom the taxpayer has claimed the disability tax credit.

·      two thirds of the income earned by the individual making the claim.

If you owe money when your income tax return is complete, the only way to delay payment is to delay the filing until the April 30th deadline. Alternatively, if CRA owes you money, then file as early as possible. 

2018 Federal Budget Highlights for Families

Several key changes relating to personal financial arrangements are covered in the Canadian government’s 2018 federal budget, which could affect the finances of you and your family. Below are some of the most significant changes to be aware of:

Parental Leave

The government is creating a new five-week “use-it-or-lose-it” incentive for new fathers to take parental leave. This would increase the EI parental leave to 40 weeks (maximum) when the second parent agrees to take at least 5 weeks off. Effective June 2019, couples who opt for extended parental leave of 18 months, the second parent can take up to 8 additional weeks, at 33% of their income.

Gender Equality

The government aims to reduce the gender wage gap by 2.7% for public servants and 2.6% in the federal private sector. The aim is to ensure that men and women receive the same pay for equal work. They have also announced increased funding for female entrepreneurs.

Trusts

Effective for 2021 tax filings, the government will require reporting for certain trusts to provide information to provide information on identities of all trustees, beneficiaries, settlors of the trust and each person that has the ability to exert control over the trust.

Registered Disability Savings Plan holders

The budget proposes to extend to 2023 the current temporary measure whereby a family member such as a spouse or parent can hold an RDSP plan on behalf of an adult with reduced capacity.

If you would like more information, please don’t hesitate to contact us.