The Federal Minister of Finance, Bill Morneau, delivered the Liberal government’s 2018 budget yesterday in Ottawa. To help you navigate the business and personal tax updates and changes, we have summarized some of the budget highlights below.
Small Business Tax Rate
The Budget confirms that the small business tax rate for the first $500,000 of taxable income will be reduced from 10% to 9% effective January 1, 2019. This means that the combined Federal and British Columbia corporate tax rate for active business income on the first $500,000 remains at 12% for 2018 and will be reduced to 11% for 2019. Income over $500,000 remains taxed at 27%.
Passive Investment Income Taxation
The Budget proposes two new measures applicable to taxation years that begin after 2018:
1. Business Limit Reductions:
The small business tax rate will be reduced on a straight-line basis for Canadian Controlled Private Corporations (CCPCs) with $50,000 to $150,000 of investment income. The small business deduction will be reduced by $5 for every $1 of investment earned above the $50,000 threshold in the preceding year. CCPC’s earning greater than $150,000 of passive income will no longer be eligible for the small business tax rate.
2. Refundable Tax on Investment Income
The Budget proposes to limit the refund of refundable taxes (RDTOH) on the distribution of certain dividends. A refund of RDTOH will be allowed only where a private corporation pays non-eligible dividends. An exception will be made for refundable tax that arises from eligible portfolio dividends received by a corporation. Specific transitional rules will apply.
No further changes were announced to the income splitting rules previously announced in December of 2017.
Canada Workers Benefit
The Budget proposes to rename the Working Income Tax Benefit to the Canada Works Benefit. This benefit will be equal to 26% of each dollar of earned income in excess of $3,000 to a maximum benefit of $1,350 (for single individuals) and $2,335 for families. The benefit is reduced for income over $12,820 for single individuals and $17,025 for families.
Medical Expense Tax Credit
The Budget proposes to expand the Medical Expense Tax Credit to allow expenses incurred in respect of an animal specially trained to perform tasks for a patient with a severe mental impairment in order to assist them in coping with their impairment.
EI Maternity and Parental Benefits
Budget 2018 proposes to increase the amount of EI parental leave by 5 weeks (or 8 weeks under the extended option). Only the second parent (typically a father) would be entitled to additional weeks.
Reporting Requirements for Trusts
The Budget proposes to require certain trusts (including family trusts) to provide specific information on an annual basis (identity of the trustees, beneficiaries and settlors of the trust, etc.). Currently, where a trust does not earn income or make distributions in a year, it is generally not required to file an annual tax return. The proposals outline a penalty of $25 per day up to a maximum $2,500 penalty for failure to file the return. These proposed new reporting requirements and penalties will apply to returns required to be filed for the 2021 and subsequent taxation years.
Mineral Exploration Tax Credit
The Budget proposes to extend the 15% Mineral Exploration Tax Credit until March 31, 2019.