On Tuesday March 19, 2019, the Federal Government released the 2019 Budget. While the 2019 Budget contained no broad sweeping tax changes, there are a various number of smaller changes being proposed. Aside from specific tax measures, the 2019 Budget:
- Reaffirmed the Government’s view to continue with technical amendments to various tax legislation as opposed to doing a complete review of the whole system.
- Committed to continuing to work with farmers, fishers and business owners to develop new proposals to better facilitate the intergenerational transfer of their businesses.
- Continues to provide additional funding to the Canada Revenue Agency. This time in the amount of $317 million over the next 5 years.
While full details of the 2019 Budget can be found by clicking here, summarized below are a few of the items we believe most relevant to private companies.
Business Tax Measures
Corporate income tax rates
No changes to the corporate income tax rates are proposed. As such, the income tax rates as of January 1, 2019 will be as follows:
|BC||Combined (Federal and BC)|
|Small business 1||2%||12%|
1 For first $500,000 of taxable active business income
Scientific Research and Experimental Development
For a Canadian controlled private corporation that carries out qualifying activity, they are entitled to receive a refundable 35% tax credit on up to $3 million of certain expenditures per year. Once the company’s taxable income exceeds $500,000, the expenditure limit is reduced and fully disappears once the taxable income hits $800,000. At this point, the 35% refundable tax credit becomes a 15% non-refundable tax credit.
This expenditure limit reduction also applies when the company’s taxable capital exceeds $10 million.
The 2019 Budget proposes to eliminate the use of taxable income as a factor in determining the annual expenditure limit for purposes of the 35% refundable tax credit and only apply the taxable capital calculation.
This will be effective for taxations years ending after March 19, 2019.
The 2019 Budget proposes a number of support measures for Canadian journalism organizations producing original news. This support is being achieved by:
- Allowing certain organizations to receive donations (effective 2020);
- Providing a 25% refundable income tax credit on certain wages of eligible newsroom employees (effective 2019); and
- Allowing individuals the ability to claim a non-refundable tax credit of up to $500 for eligible digital news subscriptions starting in 2020 and ending in 2024.
Purchases of zero emission vehicles
Applicable for purchases after March 19, 2019, a new capital cost allowance class is introduced to allow a 100% deduction of the vehicle price up to a maximum purchase price of $55,000. Starting in 2024, this 100% will be phased out and reduced back to 30% by 2028.
Personal Tax Measures
Personal Income Tax Rates
No changes to the personal income tax rates are proposed. As such, BC’s top personal income tax rates for 2019 will be as follows:
|Personal Top Marginal Rates (Income > $210,371)|
|Interest and regular income||49.80%|
Note: The tables shown above represent the combined Federal/BC Provincial personal tax rates.
Employee Stock Options
While no details were provided in the budget documents, there will be changes happening to the employee stock option rules with the goal of limiting the available stock option deduction to $200,000 per person on an annual basis. This limit is only to apply to those stock options that are from “large, long-established, mature firms”. It appears that where a company would fall outside of this definition (as yet to be provided) that the $200,000 limit would not apply. The budget documents state that any change would only apply on a go-forward basis and that legislative proposals will be provided later in the year.
First-Time Home Buyer Incentive
The 2019 Budget proposes to introduce a new program to allow eligible buyers to partner with the Canadian Mortgage Housing Corporation (CMHC) to reduce the amount of money required from an insured mortgage without increasing the amount they must save for a down payment. Under the new program, CMHC would provide funding of 5 or 10 per cent of the home purchase price but there would be no ongoing monthly payments are required. The documents suggest that the buyer would repay this amount at re-sale.
The full details of this program and how it would work were not released so a lot of questions remain unanswered. It is expected that full details will be available later this year and the government states that the program would be in place by September 2019.
Canada Training Credit
The 2019 Budget introduces a new refundable tax credit for individuals between 25 and 64 years of age to assist with training costs starting for the 2019 year. This credit will accrue at $250 per year and stop once the balance hits $5,000. Amounts eligible for this credit will generally be the same as amounts that are eligible for the existing tuition tax credit.
Home Buyer’s Plan
The amount that first-time home buyers can withdrawal from their RRSP to purchase a house has been increased from $25k to $35k.
Change of use provision
Where a taxpayer owns a piece of property and changes its use (either wholly or partially) from a personal use property to an income producing property (or vice versa), there are certain rules that provide that a disposition at fair market value is deemed to occur at that time. As well, there are provisions that allow a taxpayer to defer any gain that would be realized on this deemed disposition until the property is actually sold. Currently, the provision to defer the gain only applies when the whole property changes its use so where taxpayers own a multi-unit property (e.g. a duplex) and decide to start renting or move into one of the units, this relief is not available. The 2019 Budget proposes to allow a taxpayer to defer the gain when only part of the property changes its use. This will apply for any changes of use on or after March 19, 2019.
For more information on how any of the proposed changes my impact your business or you, contact your Rise Advisor.