Issue #58 - "Budget 2018 Update"

2018 Budget Update

Finance Minister Bill Morneau released the 2018 Federal Budget on February 27^th in what is being billed as the “Budget that could have been a lot worse”.  It is most notable for what was not done to the tax code, as opposed to what was.  The following is a concise summary of the changes that may affect you and your family. 

Individuals

What’s New

1. Canada Workers Benefit

Replacing the existing Working Income Tax Benefit, the 2018 budget expands the amount of tax credits awarded to low-income earners.  In large part, this change is lauded as a great way to encourage capable individuals to make the move from unemployment and welfare to gainful employment.  

2. CPP Enhancement

The Canada Pension Plan Enhancement will be phased-in in 2019.  This enhancement will include increased payouts for both parents who take time off of work to care for young children or individuals with severe and prolonged disabilities.  Increases to benefits for those who lose their spouse under the age of 45 as well as for those who remain disabled beyond age 65 were also included in this budget.

What Hasn’t Changed

• Individual income tax rates
• Tax treatment of capital gains
• Rules relating to registered plans and contribution amounts to TFSAs, RESPs, RRSPs, RDSPs, etc.
• Mineral Exploration Tax Credit (15%) for investment in Flow-Through shares has been extended to March 31^st, 2019.

Corporations

What’s New

• The amount of investment income taxed at the preferential small business tax rate is subject to a new limit. Under the new guidelines, earned investment income in excess of $50,000 will reduce the income eligible for the small business tax rate at a ratio of $5 to $1, up to the existing $500,000 limit.       For example, say a corporation earned $100,000 in investment income.  $50,000 of that income would be exempt and the other $50,000 would ‘eat up’ (5 times $50,000) $250,000 of the available $500,000 at the preferred rates.  This “simplicity” has been very well received from the business community that has collectively issued a sigh of relief.
• Changes to the Refundable Dividend Tax on Hand mechanism.

What Hasn’t Changed

• Corporate tax rates as proposed in October 2017 (from 10.5% to 10% in 2018 and 9% in 2019)
• Tax on split income (TOSI) as proposed in December 2017 (no more sprinkling)

Spending & Other Areas of Interest

• $1.2 billion earmarked for the introduction of a new EI Parental Sharing Benefit that will provide new parents with access to additional weeks of EI on a ‘use it or lose it’ basis.
• $320 million investment in CRA to combat tax avoidance, protect confidential information of tax payers, and improve service levels which is long overdue in our opinion.
• Signalled intent to discuss the launch of a Nationwide Pharmacare program to lower the cost of drugs among other more ambitious projects.

All in all, this budget was lacklustre given that all the big changes affecting small business owners were announced throughout 2017.  Bruised and beaten from the combination of the minimum wage increase, the elimination of income splitting, and the potential threats to NAFTA, business owners are breathing a sigh of relief that no other surprises are on the horizon, at least in the near term.

Sources:
Mackenzie Investments:  “2018 Federal Budget Bulletin”: https://www.mackenzieinvestments.com/en/products/tax-and-estate-planning/2018-federal-budget-summary
CALU:  “Special Report on Budget 2018”:  https://www.calu.com/securefiles/CALUSpecialReport/CALU-Special_Report_re_2018_Federal_Budget-final_for_posting.pdf