New Year, New Tax Changes – How Will They Affect You?
January first each year typically brings a host of tax changes and 2019 is no exception. Here are our top five tax changes we foresee having an impact on your small businesses and personal taxes this year:
1. Canada Pension Plan (CPP) Enhancement – Odds are you’ve already received your first pay period of 2019 and you may have noticed an increase in your CPP contributions. While the details of the CPP enhancement were hashed out in 2016, this will be the first year that employees and employers see the effects of this enhancement. This year, the CPP contribution rate has increased from 4.95% to 5.10% and the maximum pensionable earnings have also increased from $55,900 to $57,400. As a result, both the employer and employee can expect to pay an additional $155 in CPP contributions for employees earning $57,400 or more.
The CPP will continue to be enhanced over the next four year, culminating in 2023 with a projected CPP rate of 5.95% and a maximum pensionable earnings of $65,700. Further enhancements are slated for 2024 and 2025 but will only impact higher income earners, those earning more than $65,700.
2. EI Rate Reduction – At the same time CPP contribution rates are going up, the government has announced a reduction in EI rates. For 2019, EI rates will drop from 1.66% for employee to 1.62% and from 2.32% for employers to 2.27% however the maximum insurable earnings has been increased from $51,700 to $53,100.
3. Personal Tax rates – There were no change to personal tax rates for 2019. The only changes were normal inflationary increases to tax brackets. The highest tax bracket in Ontario remains at $220,000 with a tax rate of 53.53%.
4. Changes to federal Small Business Tax Rates - Effective January 1, 2019 the federal small business tax rate for CCPCs will drop from 10% to 9%. This will bring the combined federal and provincial small business tax rate in Ontario down to 12.5%. As a result of the changes, the personal dividend tax credit and gross-up on non-eligible dividends has been adjusted, effectively increasing the personal tax on non-eligible dividends by the amount of the corporate tax decrease. As a result, business owners will only realize a tax deferral on profits retained within the corporation.
5. New Investment Tax Rules for Canadian Controlled Private Corporations (CCPCs) – As part of the governments small business tax reforms announced in summer 2017, CCPCs will now have to follow new passive income rules. Fortunately, the complexity of these rules has been significantly scaled back from the original proposals, however they will affect many small businesses all the same. The first measure reduces a corporation’s income which can be taxed at the small business rate when passive income exceeds $50,000 in a taxation year. Further, the new rules have divided the dividend refund pools of corporations into two separately tracked accounts.
The Ontario government announced in its fall economic statement that it will not follow the federal government on these changes. As a result, we expect that Ontario corporations will only lose access to the federal small business deduction as a result of passive income in excess of $50,000. These rules apply to tax years beginning after 2018.
These five changes are the primary changes affecting small businesses and employees for 2019 however keep your eyes open for the federal government’s 2019 budget announcement, likely in February or March. That said, don’t expect the budget to rock the boat too much as we gear up for the 2019 election.
Please note that this is not a comprehensive tax summary and is intended as a broad overview of the changes.
Contact us today. We would be happy to discuss how these changes may affect you and your business.