Summary of Key Tax Changes Contained in the 2019 Federal Budget
The budget that was introduced on March 19, 2019 projects a deficit of $14.9 billion for 2018-19. The deficit is projected to climb to $19.8 billion in the 2019– 2020 fiscal year and then decline to $9.8 billion by 2023 – 2024.
- Many of the budget’s tax measures support its broader focus on:
- fostering skills training,
- promoting home ownership, and
- supporting research and development.
- No changes were proposed to Canada’s personal, corporate or indirect tax rates.
- No plans were offers for a comprehensive review with the aim of improving Canada’s current tax system.
Some of the top tax changes that were introduced in the budget take effect on varying dates and are summarized below.
Changes Affecting Individual Tax Payers in 2018
– Support for skills training Canada Training Benefit
- A new, non-taxable Canada Training Credit will allow eligible workers aged 25 to 64 a credit balance of $250 per year, which can accumulate to a lifetime limit of $5,000 to be used to cover up to half of eligible fees.
- A new Employment Insurance Training Support Benefit will provide income support when an individual needs time to take off work for skills training.
– Home Buyers’ Plan (HBP)
- The budget proposes to increase the amount that first-time home buyers can withdraw from their Registered Retirement Savings Plans to buy or build a new home to up to $35,000 (from $25,000) under the HBP. Eligibility for the HBP is being extended to help Canadians maintain home ownership after marital or common-law relationship breakdowns.
- Change-in-use of multi-residential properties — The budget proposes to allow the same preferred capital tax treatment that now applies for single-unit properties to owners of multi-unit residential properties when they convert a portion of those properties from rental to residential properties (or vice versa).
Other personal tax measures include:
- Broadening the tax rules for certain registered plans to allow new types of annuities
- Changing the rules for Registered Disability Savings Plans to allow them to better protect the long-term savings of persons with disabilities
- Canada Workers Benefit (CWB) — The CRA is allocated money starting in 2019–20, to improve access to the Canada Workers Benefit through targeted outreach. This includes promoting the CWB’s little-used advance payment provision, which allows an applicant to receive up to four advance payments of the benefit throughout a year (limited to half of their estimated CWB entitlement for the year).
Changes Affecting Small Business Owners:
- Regarding SR&D tax credits: The Budget provides support for research and development, scientific research and experimental development (SR&ED) by proposing to improve the support for small and medium-sized businesses currently provided through the enhanced 35% SR&ED tax credit (rather than the regular 15% SR&ED credit rate). The income threshold for accessing the enhanced credit will be eliminated, which will help smaller companies as they grow through a more predictable phase-out of the enhanced 35% rate. These companies will no longer need to reduce taxable income using bonuses to $500,000 for SR&ED purposes. (The existing $10 million capital threshold for accessing the enhanced credit will still apply.)
- Regarding Employee stock options Employee stock option deduction: The 2019 Budget announces the government’s intention to limit the use of the current employee stock option tax regime to make it fairer and more equitable for Canadians, while ensuring that start-ups and emerging Canadian businesses that are creating jobs can continue to grow and expand. The government plans to apply a $200,000 annual cap on employee stock option grants (based on the fair market value of the underlying shares) for employees of large, long-established, mature companies. For start-ups and rapidly growing Canadian businesses, employee stock option benefits would remain uncapped. More details are to be released before the summer of 2019.
- As a greener environment initiative, the budget supports businesses’ adoption of zero-emission vehicles by making them eligible for a 100% capital cost allowance rate in the year they are put in use.
- Regarding Improving tax compliance:
- The budget extends the joint and several liability under the rules preventing the carrying on of business in Tax-Free Savings Accounts (TFSA) beyond financial institutions (as trustees) to also include TFSA holders
- The budget prevents certain arrangements that inappropriately defer tax or convert ordinary income into lower-taxed capital gains (i.e., through mutual fund trusts, derivative transactions, individual pension plans)