Is your small business ready for Canada’s new tax rules? (Part Three)
Employment insurance premiums and small business tax rates change
January 24, 2019 by John Bleasby
Tax reductions, and premium increases and premium decreases: Yes, there’s a mixed bag of costs and benefits for Canadians in 2019. It’s the final installment of our 3-part series concerning changes to Canadian small business and their employees as a result of the 2018 Federal budget.
Small business tax rates decline again
Small businesses are set to enjoy a slight boost to their after-tax incomes in 2019. The small business tax rate, which was reduced in 2018 to 10 per cent, will now drop down another full point to 9.0 per cent this year. The Federal government expects this reduction will save the typical small business around $7,500, which they hope will be reinvested in new equipment, new products or new jobs. “With this reduction, the combined federal-provincial-territorial average income tax rate for small business will be 12.2 per cent—the lowest in the G7 and the fourth lowest among members of the Organisation for Economic Co-operation and Development,” says the Department of Finance website.
This reduction will also be reflected in the tax treatment of what Finance calls, “non-eligible dividends, ([those] generally distributed from corporate income and taxed at the small business rate),” an adjustment which should also be cheered by small family-owned businesses.
CPP tax deductions instead of tax credits
As mentioned in Part Two of our small business tax series, employer contributions to the Canadian Pension Plan (CPP) have increased incrementally starting January 1, and will continue to do so each year for some time. In terms of the employee contributions to the CPP, “a tax deduction—instead of a tax credit—will be provided for employee contributions associated with the enhanced portion of the CPP and QPP.”
Employment Insurance rates have dropped
There’s more good news for both employers and employees, albeit small. Employment Insurance (EI) premiums are dropping for 2019, thanks to what the Federal government says are strong employment numbers throughout the country. “EI rates that employees pay are dropping by four cents per $100 of insurable earnings from $1.66 to $1.62,” the website says. “In Quebec, the rates are dropping five cents per $100 of insurable earnings from $1.30 to $1.25. The amount employers contribute, which is 1.4 times what employees pay, will also be reduced.”
Other changes your employees should know about
The basic personal income exemption amount rises for everyone in 2019 to $12,069. Also, the annual contribution limit to Tax-Free Savings Accounts (TFSA’s) has increased by $500 to $6,000. This might be of interest to employers who are using TFSA contributions as a form of employee bonus or incentive program, or use TFSA contributions as a type of pension/retirement planning offering.
Read the two previous instalments of our Small Business Tax Change Series
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