Tax season has arrived in Canada, so it is time to gather receipts, chalk out deadlines for filing, and brush up on new rules.
What considerable changes have been introduced in 2019?
Most of the notable tax changes from the year 2018, directly impacts small business owners. For instance, the tax rate for federal small businesses has been decreased to 10% from 10.5%. If you own an Airbnb rental, have a service animal or attend a post-secondary institution, then you may be affected by changes to Canada’s tax code.
There is an expansion of a tax credit for expenses related to service animals specifically groomed to aid people suffering from blindness, mental issues, deafness, autism, severe diabetes, severe epilepsy, and long-term restrictions on the use of their arms or legs. So the cost of obtaining the animal, food, veterinary visits, and training come directly under the credit scheme.
If you have to move for work related reasons, you can claim moving expenses in a tax return as before, but no tax deduction is available for home relocation loans. Post-secondary students in Saskatchewan and Ontario won’t receive provincial tax credits for their tuition, but tuition is eligible for federal tax credits. Businesses can claim deductions for capital purchases made after November of the last year much faster than they could before, so the accelerated capital cost allowances will benefit them.
What about income splitting between family members?
Business owners pay dividends to family members that reduce tax burden, but the new income-splitting rules have declared this practice void in 2019. No longer can you pay dividends for lessening taxes – if you wish to pay family members for working in the business, they have to assume a more active role. Relatives of business owners are eligible to receive dividends at a lower tax rate if they can prove their contribution to the business in the last 5 years.
What about the carbon tax impact?
Unlike businesses and corporations, consumers don’t need to pay tax directly but the prices of goods and services from industries that generate higher greenhouse gases, will definitely go up. For instance, gas prices are estimated to shoot up at 4.4 cents per litre in April 2019, and by 2022, the very same surcharge will go up to 11 cents per litre due to the carbon tax rising simultaneously.
This cost will be countered via the federal carbon tax backstop policy that offers a general annual rebate to Canadian households depending on the average expenses of a province and divided uniformly across the board. The average rural household in Saskatchewan, who drive more than urban counterparts is supposed to get an approximate rebate of $598, irrespective of the amount spent or emitted, but an average household in Ontario will only be eligible for a rebate of $300.
What happens in future?
There is no Working Income Tax Benefit for low income people in the workforce, which still impacts the average household, if a particular member falls in this category. However, the benefit is now called the Canada Workers Benefit and will be enhanced – as per the government, most recipients get a 26-per-cent top-up of their earned income over $3,000 instead of the current 25 per cent. As mentioned, the federal tax rate of small businesses is now 10% but it could fall further as the year progresses, to 9%.
If your business relies on passive income via investments, dividends and other activities not directly related to your core area of operation, the restrictions just got stricter! You lose access to the small business tax rate for your active income if the passive income is in excess of $50,000. So if the passive income is around $150,000, the small business deduction simply goes away!
There are going to be more changes regarding taxes and their impact on average households as you move towards the next quarters of the year, so you have to wait and watch!