Canadian Tax Changes for 2019

Working Income Tax Benefit Renamed and Enhanced

The Working Income Tax Benefit is a refundable tax credit that helps give tax relief to low-income individuals and families to encourage them to participate in the workforce. The Working Income Tax Benefit is being renamed the Canada Workers Benefit. But that’s not all. It will be enhanced beginning in 2019 and indexed (increased with inflation) thereafter. (Similar enhancements will be applied to the Canada Workers Benefit disability supplement.)

Under the Working Income Tax Benefit in 2018, single individuals without children were eligible for a maximum benefit of $1,059, while families were eligible for a maximum benefit of $1,922. Those maximum amounts are being increased under the Canada Workers Benefit in 2019 to $1,355 for individuals and $2,335 for families, respectively.

To make your tax filing life easier, the CRA will automatically determine if you’re eligible to receive the Canada Workers Benefit and assess your tax return as if you’ve already claimed it, even if you hadn’t on filing. If you’re an eligible couple making the claim, the CRA will designate the partner who is to receive the benefit.

Claiming Service Animals as a Medical Expense

The medical expense tax credit is being expanded. If you’re filing a tax return for someone who requires an animal specially trained to perform tasks to help them cope with an impairment, then you’ll be able to claim it as a medical expense (if it was incurred after 2017). For example, you could claim the expense for a dog trained to help an individual with post-traumatic stress disorder, along with associated expenses like the food and cage for the animal.

Registered Disability Savings Plan Holders

The Registered Disability Savings Plan (RDSP) is a government program intended to assist people with disabilities save for the future. If the disabled beneficiary lacks the capacity to enter into a contract, a qualifying person (e.g. a family member) can be designated to administer the RDSP. However, this administrator must be the disabled beneficiary’s legal representative, which may pose a problem as the appointment of a legal representative can take quite a while.

The good news is that a temporary federal measure allows an immediate family member to be the planholder of the disabled person’s RDSP, even if they aren’t yet designated as the person’s legal representative. This measure has now been extended by five years and lasts until the end of 2023. Furthermore, if you’re a qualifying family member who became a planholder before the end of 2023, you can remain the planholder after 2023.

Registered Disability Savings Plan Holders

Changes have been made to the Voluntary Disclosure Program (VDP). If you’re unfamiliar with the VDP, it’s a program to encourage Canadians who may not have been completely honest about their tax situation in the past to come forward. If your application to the VDP is accepted, you’ll be required to pay the taxes you owe, plus interest (partially or fully). However, you may be eligible for relief from prosecution or penalties that you’d normally face.

The changes that came into effect March 1, 2018 apply to taxpayers who purposely avoided their tax obligations. If that’s you, you’re now able to apply under a new “Limited Program” and face a lesser penalty.

Rates and Limits

As expected, several tax rates and limits are changing for 2019.

• Federal and provincial income tax brackets are being increased (due to inflation).
• Employment Insurance (EI) Premiums are being decreased. The EI rate is being reduced from 1.66 percent in 2018 to 1.62 percent in 2019.
• Maximum pensionable earnings, the amount used to calculate Canada Pension Plan contributions for the year, will increase to $57,400 in 2019, up from $55,900 in 2018. Likewise, the employee and employer contribution rates for 2019 will increase by 5.1 percent from 4.95 percent in 2018. It’s the first in a gradual set of increases over the next five years that will see the contribution rate eventually go up to 5.95% in 2023. The increases are to pay for an enhanced CPP for Canadians.
• If you’re a recipient of the Canada Child Benefit, then we have some good news: the Benefit will be indexed to inflation going forward. That means you don’t have to worry as much about your purchasing power falling each year.

Tax-Free Savings Account Contribution Limit Increased

Savers rejoice! At long last, the annual contribution limit on the Tax-Free Savings Account (TFSA) has been upped. In 2019, anyone who’s eligible to contribute to the TFSA can contribute up to $6,000 annually, up from $5,500 in 2018.

As the name suggests, your money will grow tax-free inside the TFSA. Also, unlike the Registered Retirement Savings Plan, you won’t have to pay any income tax when you withdraw your money.

Tax Filing Process Simplified for Low Income/Fixed Income

Starting in February 2018, if you’re a low income or fixed income individual whose income remains the same year-to-year, the tax filing process just became easier. You’re now able to call a dedicated automated phone line. (You should have received an invitation letter with full instructions if you’re eligible.) After answering a series of short questions and providing some personal information for verification purposes, you can file your tax return over the phone. It doesn’t get any simpler than that!

Climate Action Incentive

The Climate Action Incentive is a new tax credit being offered in certain provinces (Saskatchewan, Manitoba, Ontario and New Brunswick) related to the federal carbon tax. These four provinces have failed to introduce a carbon pricing scheme of their own. If you’re a resident in these provinces, you’ll get this new tax credit when you file your tax return. The credit will help offset the federal carbon tax that’s going to be added starting in April 2019 when you fill up your vehicle at a gas station or when heating your home. (You can expect to pay 4.42 cents per litre more at the pumps and 3.91 cents per cubic metre more for natural gas.)

For the average family of four, the incentive will add up to $609 in Saskatchewan, $339 in Manitoba, $307 in Ontario and $256 in New Brunswick. (Only one person per household can claim the incentive.) The incentive will be 10% higher for those located in rural areas.

If you’re a resident in a province outside the four provinces mentioned above, you won’t be eligible for the Climate Action Incentive. That’s because the other provinces have either introduced their own provincial carbon tax (in the case of Alberta and B.C.) or are in the midst of introducing a carbon pollution pricing system.

Accelerated Capital Cost Allowance Deduction

Those who are self-employed or are small business owners can claim something called Capital Cost Allowance (CCA). The CRA understands that office equipment, furniture and computers wear out and lose value as they get older. As such, CRA lets you gradually deduct the expense of these major purchases over time.

If you purchase any of these items on or after November 21, 2018, but before 2024, you’ll be able to claim more and get a bigger tax break. The “Accelerated Investment Incentive” lets you claim 150% of the normal CCA rate in the year of purchase (previously, you could only claim 50%). This means that the amount you can claim has tripled. Not bad!

You may be eligible for this tax deduction without even realizing it. If you’re renting out your place using a room-sharing service like Airbnb, you can claim this deduction if you bought any furniture to furnish your property between the above-mentioned dates.

Changes to Employment Insurance for Parents

The 2018 federal budget changed Employment Insurance (EI) to let parents take extra time off. You’re eligible if your child was born or adopted on or after March 17, 2019. If you choose the standard parental leave, you could receive up to 40 weeks of parental benefits, up from 35 weeks. If you choose an extended parental leave, you could receive up to 69 weeks of parental benefits, up from 61 weeks.

If you’re on parental leave and you decide to return to work early, it can get a little tricky. Normally, you’d receive 55% of your weekly salary as an EI benefit while on parental leave. However, when you go back to work early, you’ll need to subtract 50 cents from your EI benefit for every dollar you earn. It’s easier to understand if we run through an example.

Let’s say Susan made $1,000 a week prior to maternity leave. Since her EI benefit is 55% of this, she gets $550 a week while she’s on maternity leave. Susan decides to return to work early and work on a part-time basis. If she earns $600 a week while working part-time, she needs to subtract 50 cents from every dollar she earns (that’s $300; $600 X $0.50 = $300) from her EI benefit. Susan’s EI benefit is now $250 per week ($550 – $300 = $250), plus she’s earning $600 a week part-time, for a total weekly earnings of $850.

Other Tax Changes

• The public transit tax credit has been eliminated.
• The employee home relocation loan deduction has been eliminated.
• The first-time donor’s super credit has been eliminated.
• The small business corporate tax rate has been reduced from 10% to 9% as of January 1, 2019.
• Students in Saskatchewan, Ontario and New Brunswick are no longer able to claim a provincial tax credit for their tuition expenses.
• The rules around income splitting have changed. Business owners can no longer pay dividends to family members to reduce their tax bill. However, relatives of business owners can still get dividends at a lower tax rate, but only if they can prove that the family members have contributed to the business in the last five years.
• If you’re a small business owner reporting more than $50,000 in passive income, you’ll start to lose access to the advantageous small business tax rate – currently 9% on the first $500,000 of business earnings. Business owners can reduce their passive income by reinvesting their earnings into their business or hiring more workers.