Our friends at Video Tax News have helped us develop this downloadable PDF pamphlet to summarize the various programs and benefits related to Canada’s Economic Response Plan for COVID-19 for individuals and small businesses.
Finally, some good news for businesses with some recent tax changes! After plenty of bad news with TOSI (tax on split income) and income from passive investments, the Liberal government has announced some positive new tax measures to help businesses in their Fall Economic Statement 2018 released on November 21, 2018.
These new rules relate to capital asset purchases and an accelerated capital cost allowance (CCA) rate in the first year of acquisition. The government calls this measure the Accelerated Investment Incentive (A.I.I.). What this means is that businesses will get a larger tax expense in the year of acquisition.
For example, if a farming business purchased a new tractor for $250,000 under CCA Class 10, the business would receive a tax deduction of $37,500 in the first year under the old rules, resulting in tax savings of $4,500 (using a 12% combined corporate tax rate). Under the new A.I.I. rules, the new tractor would result in a tax deduction of $112,500 and tax savings of $13,500. An increased tax savings of $9,000 for a small business corporation. This could be higher under a proprietorship business where the marginal tax rates can be progressively higher.
Another example is with a business vehicle. A vehicle costing $30,000 would typically be in Class 10 with a 30% CCA rate. Historically, in the year of acquisition the business would receive a $4,500 deduction. Under the new A.I.I. rules, the business would receive a $13,500 deduction. Under the 12% combined corporate tax rate, that results in tax savings of $1,080. Again, these tax savings could be higher under a proprietorship business where the marginal tax rates can be progressively higher.
To summarize the A.I.I rules, the capital cost allowance is now calculated without the half-year rule in the year of acquisition and provides an increase of 50% of the rate in the year of acquisition. At the end of the day, the tax deduction has tripled in the year of acquisition. Keep in mind that in subsequent years, there are no changes to the CCA rate. The A.I.I. will stay in effect until 2024 when it will be gradually phased out by 2027.
What Does This Mean?
As these new rules are effective for capital asset acquisitions starting now (as of November 20, 2018) and if you’re looking at reducing your tax bill for your 2018 taxes, it may be a good decision to purchase or replace some of your capital assets. The type of capital assets are not limited, so it could be vehicles, heavy equipment, buildings, computers or office equipment. Talk with your CPA business advisor to help you determine how these new rules with impact your business.
In addition to the A.I.I. rules mentioned, the government has also announced 100% tax deduction in the year of acquisition for machinery and equipment used in Canada for the manufacturing and processing of goods and for specified clean energy equipment.
If you would like to learn more about these new rules or other tax rules, feel free to get in touch with us and talk with Stewart Stolz, CPA, CA.
The 2017 tax filing season officially starts on February 26, 2018 when CRA re-opens it’s EFILE services for professional tax filers. We have met with clients and completed several returns already!
We have launched our cpa100.ca website for 100 Mile House residents where you can download our handy tax checklist, learn about our tax return preparation process, and find answers to some common questions.
Remember, the deadline to file and pay your taxes is April 30, 2018. If you or your spouse is self-employed, you have until June 15, 2018 to file your return, however any taxes owing would still be due by April 30, 2018.
The following are changes to be aware of for this 2017 filing season:
Sale of Principal Residence
Last year for 2016, CRA introduced the requirement to disclose the sale of your principal residence during the year on Schedule 3 of your tax return. In 2017, if you disposed of your principal residence and wish to designate the principal residence for a tax-free transaction, CRA also requires that you fill out and sign form T2091.
Children’s Arts and Fitness Tax Credits
Children fitness and arts credit has been eliminated federally. However, in BC, the provincial credits are still available for one more year in 2017. Maximum claim amount for both provincial credits is $500 per child. Be sure to dig up or request receipts for hockey, gymnastics, music lessons, and even horse back riding.
Education and Textbook Credit
The education and textbook credit has been eliminated. However, the tuition amount is still in place. Don’t forget to download your T2202A receipts from your post-secondary educational institution student portal.
Canada Caregiver Credit
The Canada Caregiver Credit has been introduced in 2017 which consolidates and replaces 3 credits from 2016: infirm dependent credit, caregiver credit, and family caregiver credit. This should simplify the claiming of any caregiver credits.
Public Transit Pass
The Public Transit Pass credit has been eliminated effective July 1, 2017 so you’re still able to claim receipts up to June 30, 2017.
Many residents across BC were impacted by the wildfires, including Stewart and his family. We’ve had a few clients ask us about the wildfire financial assistance received from Red Cross, ESS, Service Canada, insurance, etc. and whether any of it needs to be reported on your tax returns. We cover some of the basic situations in this article but if you have any questions on more complex situations, please give us a call or email and we would be happy to talk with you.
Financial Assistance to Individuals/Families
1. Red Cross
Financial assistance provided by the BC government administered by the Red Cross was given to all residents affected by the BC wildfires and was not based on income level or employment status. The assistance was to help with basic needs such as food, clothing, lodging and essential goods and services. Subdivision D of the Income Tax Act, which outlines “Other Sources of Income” does not include this type of financial assistance and is therefore NOT included as income.
2. Emergency Social Services (ESS)
Many wildfire evacuees also received financial assistance from the BC government’s ESS program. The assistance was to help evacuees with food and lodging. Subdivision D of the Income Tax Act, which outlines “Other Sources of Income” does not include this type of financial assistance and is therefore NOT included as income.
3. Insurance Proceeds
Evacuated homeowners may have received insurance proceeds from their home owner’s insurance policy. This may include covering living expenses while evacuated, the replacement of appliances, and/or repairs to the home for smoke or fire damage. These insurance proceeds are generally NOT included as income.
4. Employment Insurance (EI) Benefits
Employees may have received EI benefits from Service Canada due to loss of employment, whether temporary or permanent, caused by the wildfire evacuations. These benefits generally ARE included as income and the recipient of these benefits should receive a T4E slip from Service Canada to report on their tax return.
5. Financial Assistance from Employers
Employers may have provided financial assistance directly to employees to assist with personal losses or damages as a result of a wildfires. As long as the assistance was received by the recipient in their capacity as an individual and not as an employee, the financial assistance would be NOT included as income. However, if the assistance was paid to the recipient in their capacity as an employee, the financial assistance IS included as income. More details around these rules can be found on CRA’s website here.
Financial Assistance to Businesses
1. Red Cross
Red Cross has also administered the BC government’s financial assistance program to businesses affected by the BC wildfires. This financial assistance is geared towards assisting businesses in recovering from the impact of the wildfires through compensating for income loss or increased expenses, the amounts received ARE included as business income.
2. Insurance Proceeds
Businesses may have received insurance proceeds from their business insurance policy to compensate for loss of income, loss of inventory, additional expenses, and/or replacement of capital assets. Generally speaking, the insurance proceeds ARE included as business income. However, keep in mind that the accounting for these type of transactions can be complicated and there may be certain income tax elections available to defer taxation. Stolz CPA is available to advise and assist with the accounting and taxation of these matters.
After a whirlwind summer of wildfires (literally) and the federal government’s introduction of proposed tax changes, the short 75-day consultation period has ended and here is a summary of results:
Corporate Tax Rates for Small Businesses
The federal tax rate for small business will be decreased to 10% starting January 1, 2018 and down further to 9% starting January 1, 2019. For British Columbians, with the provincial NDP government announcing that provincial corporate tax rates decreasing down to 2% starting April 1, 2017, that means the combined (federal and provincial) corporate tax rate will be 12% starting January 1, 2018 and 11% starting January 1, 2019.
The income sprinkling proposals will proceed, however with revisions to the proposed legislation. These revisions will focus on simplifying the rules and reducing the compliance burden. There is still a lot of controversy around this topic given that “reasonableness” plays a significant part in the rules, which is open to interpretation.
The proposed rules around passive income, also known as investment income, earned by a corporation will be updated to include a “small business” threshold. The government has determined that no new rules will be implemented for passive income earned up to $50,000.
Lifetime Capital Gains Exemption
The government has eliminated the proposals to restrict access to the Lifetime Capital Gains Exemption, which would have affected the sale of small business corporation shares, farming businesses, and fishing businesses.
The 2016 tax season officially starts on February 20, 2017 when CRA re-opens it’s EFILE services. Deadline to file and pay your taxes is April 30, 2017. Deadline to file for self-employed is June 15, 2017.
Some minor changes to be aware of for this filing season:
Family Tax Cut
The family tax cut has been eliminated and no longer available to use in 2016.
Universal Child Care Benefit (UCCB)
The UCCB program has been replaced with the Canada Child Benefit (CCB) program effective July 1, 2016. The CCB program is a non-taxable benefit whereas the UCCB was a taxable benefit. Therefore, if you received UCCB benefits during 2016, you will still need to report the amounts from your RC62 slip.
Sale of Principal Residence
If you sold your personal home during 2016, there’s now a requirement to report the details of the sale on your tax return. Although it may not result in any additional taxes owing (there may be issues if it was rented or used for business purposes), you are required to report the sale in order to claim the principal residence exemption.
Tax Brackets (Federal)
The tax bracket for taxable income between $45,282 and $90,563 has been reduced from a rate of 22% to 20.5%.
The tax bracket for taxable income above $200,000 has been added and is subject to a rate of 33%.
Children’s Arts and Fitness Tax Credits
The maximum claim for the arts and fitness tax credits has been reduced from $1,000 to $500. 2016 is also the last year to claim these credits as the Liberal government repealed them.
Education and Textbooks Tax Credits
No changes for 2016 but is the last year to claim them. Again, the Liberal government repealed this credit.
If you need help filing your taxes, come in to talk with Stewart, call 604-855-7975, or email email@example.com.
On April 21, 2015, the Federal Minister of Finance, Joe Oliver, presented the majority government’s budget and we’ve highlighted some of the tax initiatives that may affect our clients.
Small Business Tax Rate
The small business tax rate will be reduced from 11% to 9% as follows:
- January 1, 2016 – 10.5%
- January 1, 2017 – 10%
- January 1, 2018 – 9.5%
- January 1, 2019 – 9%
The reduction in the small business rate will be pro-rated for corporations with taxation years that straddle these dates.
Tax Avoidance of Corporate Capital Gains – Section 55
Stemming from a recent decision by the Tax Court of Canada that involved the creation of an unrealized capital loss that was used to avoid capital gains tax on the sale of another property, the budget proposes to amend section 55 to ensure that it applies where one of the purposes for a dividend is to effect a significant reduction in the fair market value of any share or significant increase in the total cost of properties of the dividend recipient. Other related rules are also proposed to ensure this amendment is not circumvented.
The budget also proposes to make a number of additional changes to the wording and structure of section 55, including changes:
- so that any dividend to which section 55 applies will be treated as a gain from the disposition of capital property for the year, rather than being added to proceeds
- that amend the exception for dividends received in certain related party transactions such that it will only apply to dividends that are received as a result of shares being redeemed, acquired or cancelled, and
- that address the use of stock dividends
The above measures apply to dividends received after April 20, 2015.
Lowering the EI Premium Rate in 2017
In 2017, the government will implement the seven-year break-even EI premium rate-setting mechanism, which will ensure that EI premiums are no higher than needed to pay for the EI program over time.
This is expected to reduce the EI premium rate from $1.88 in 2016 to an estimated $1.49 in 2017.
Tax-Free Savings Account (TFSA)
Starting in 2015, the annual TFSA contribution limit will increase from $5,500 to $10,000 and will remain at this level for subsequent years. The limit will no longer be indexed to inflation.
Home Accessibility Tax Credit
Effective 2016, eligible individuals who spend up to $10,000 on eligible expenditures in respect of qualifying individuals (seniors and certain persons with disabilities) can claim a non-refundable tax credit of up to $1,500.
Eligible expenditures in connection with an eligible dwelling for the qualifying individual include certain renovations or alterations that increase mobility or safety. This credit can be claimed in addition to the Medical Expense Tax Credit, to the extent that both apply.
For a more complete list of the budget highlights, please see this article published by PWC.