Feigenbaum Law

New Year- New Federal Tax Changes in Canada

Corporate Tax Planning
Personal Tax Planning
January 3, 2019

A new year brings with it new year’s resolutions, a fresh start, and, for Canadian taxpayers and small businesses: tax changes at the federal level. Below is a quick brief on what changes can be expected as we push into 2019.

CPP and EI

  • An increase in Canada Pension Plan premiums (CPP)- beginning in January, CPP contributions increase from 4.95% to 5.1% on earnings between $3,500-$57,400. This is the first year of five planned years of increases intended to beef up the pension plan. Rates will increase until 2023 when the rate will top out at 5.95%;
  • A decrease in Employment Insurance (EI) premiums- these will drop by four cents for every $100 of insurable earnings (i.e. from $1.66 to $1.62 per $100 of insurable earnings).

Small Business Tax Rates

As we’ve previously blogged about, in 2017 the federal government announced changes to small business taxes, outraging many small business owners across the country. Following this public outcry, the government took a step back from the original proposal and significantly watered it down.

One of the biggest changes included permitting $50,000 in passive income to be sheltered prior to a higher business tax rate being imposed. This passive income can include stocks, bonds, and rental real estate and can sit idle within an incorporated business without being used to cover operating costs or being reinvested. This is set to continue in the new year, but there will be changes as to how passive income will affect taxation of overall business earnings.

Small businesses pay a corporate tax rate of 10% on the first $500,000 of business earnings. As of January, if a business has passive income in excess of this amount, some of that first $500,000 earned will be subject to a higher tax rate, depending on how much over the limit those earnings are.

The corporate tax rate itself will decrease from 10% to 9%.

Carbon Pricing

As of January, the federal government’s controversial new carbon pricing system is in effect in provinces that do not currently have a provincial carbon tax. In those provinces, the government has imposed a tax on fossil fuels ($20 per tonne of greenhouse gas emissions). This is set to increase by $10 per year before topping out at $50 per tonne by 2022.

The cost of fossil fuels will increase under this new regime, and are set to start going up in April.  Projected estimates are predicting that the cost of a litre of gasoline will increase by 4.42 cents, natural gas will increase 3.91 cents per cubic metre, and propane will increase 3.10 cents per litre. The government has introduced rebates to partially offset these increased costs. For instance, rebates per household (defined as 2.6 people) would be, on average:

  • Ontario: $300 per year;
  • New Brunswick: $248 per year;
  • Manitoba: $336 per year;
  • Saskatchewan: $598 per year.

The carbon tax is expected to continue to a politically charged issue as both Saskatchewan and Ontario have filed separate legal actions asking courts to determine whether it was constitutional for the federal government to impose a carbon tax.

If you are a business owner and have questions about how these new changes will affect your current tax plan contact Feigenbaum Law. We are leaders in the field of tax law and assist our clients in making informed choices that lower their overall tax burden, ensure tax compliance and avoid penalties that can amount to tens of thousands of dollars. We offer our clients confidence knowing that they have a highly skilled team working to manage tax issues. Contact us to learn more about how we can help or call us at (905) 695-1269 or toll-free at (877) 275-4792.


Tagged: Carbon pricing, Corporate tax rate, CPP, EI, passive income