Summary of Key Tax Changes Contained in the 2018 Federal Budget
Changes Affecting Individual Tax Payers in 2018
- The Canada Child Benefit will be indexed to inflation starting July 2018.
- The ability to take additional time off for parental and caregiver care and get the EI Caregivers Benefit has been extended to include maternity and sickness benefits.
- You can open an RESP and claim the $500 per year Canada Learning Bond at the same time that you apply for a birth certificate for your child. This will automatically enrol children born into low-income families for the Bond.
- The CPP death benefit is now $2,500 for all eligible contributors (whereas before it was pro-rated).
- The Medical Expense Tax Credit is extended to psychiatric service dogs in order to help Canadians cope with conditions like post-traumatic stress disorder (PTSD).
- Canada Student Grants and Loans has expanded eligibility for part time students, as well as full and part time students with children, and introduced a three-year pilot project that will provide adults returning to school on a full-time basis after several years in the workforce with an additional $1,600 in grant money starting Aug 1, 2018.
- Individuals who are eligible for the Disability Tax Credit may also receive Canada Workers Benefit Disability Supplement.
For next year:
8. As of June of 2019, the government will offer five additional weeks of “use-it-or-lose-it” EI Parental Sharing Benefits when both parents commit to sharing parental leave. It is available to all two-parent families, including adoptive and same-sex couples. If you take for the standard parental leave option of 55% of EI benefits over 12 months, you will have a total of 40 weeks of leave. Also, where families have opted for extended parental leave at 33% of earnings for 18 months, the second parent would be able to take up to 8 weeks of additional parental leave.
9. The Working Income Tax Benefit becomes a new Canada Workers Benefit (CWB). If you are single and earn $15,000 or less in 2019 you may earn an extra $500 per year. In the past you had to check a box on your return to apply, but this is no longer the case. You will now be automatically enrolled.
The maximum amount of the Disability Supplement will be increased to $700 in 2019. It will be phased in at $24,111 for single individuals without dependants and will disappear at $36,483 for families.
10. A new Apprenticeship Incentive Grant for Women would give women in male-dominated trades fields $3,000 per year of training (or up to $6,000 over two years).
Changes Affecting Small Business Owners:
The small business tax rate will go from 10.5% to 10% for 2018 and to 9% in 2019. This compares to the general corporate tax rate of 15%.
You are still able to pay dividends to a non-contributing spouse at age 65, provided they’re a shareholder in your business.
New rules around passive income:
The government is trying to eliminate any advantage that small business owners may have over others when it comes to personal saving and investing.
Passive income: in simple terms is income earned from investments—stocks, ETFs, bonds, etc. Passive income excludes income that you earn as part of your active business activities.
Interest and dividends are fully taxed and only 50% of a capital gain is considered passive income. If you have $1,000,000 and earn an annual return of 10%—or $100,000—as a capital gain, then only $50,000 is counted as passive income.
Example: $1 million invested at 5% generates $50,000 of passive income.
You are allowed to earn $50,000 per year of passive income (equivalent to $1-million in savings based on a nominal 5-per-cent rate of return) and still qualify for the small business tax rate. If you earn more than $50,000 in passive income then your tax rate will gradually change to the general tax rate of 15%. Once you have passive income of $150,000 or more in a year you will no longer qualify for the small business tax rate. Small business owners; therefore, who have over $1 million in passive investments in their corporation will no longer receive the full benefit of the small business tax rate.
Going forward, income earned on past and current investments will make up the $50,000 per year of passive income, the maximum amount before higher tax rates take effect. The $50,000 per year is not cumulative; for example, if you earned $0 in year one and $100,000 in year two, you would not be able to average it out to reduce taxes.
If you earn passive income above $50,000 then the small business deduction limit is reduced by $5 for every $1 in excess.
Example #1: If you earn $100,000 of passive income, you are over by $50,000; $50,000 x $5 = $250,000, so $250,000 of business income qualifies for the small business tax rate and any remaining business income will be taxed at the general corporate tax rate.
Example #2: If you earn $150,000 of passive income you are over by $100,000 and you will no longer qualify for the small business tax rate. (For example: $100,000 x $5 = $500,000.)