Economic news
Many have forecasted that Canada’s economic growth will slow into 2019,
including
Deloitte
, in a recent economic report, and Bank of Canada Governor Stephen Poloz,
who has
cautioned Canadians
to brace for volatility. This is reflected by the Bank of Canada's
announcement last week that the prescribed interest rate will remain at
1.75%. This will be the year to seek out qualified financial professionals
who can help with
debt management, the number one financial priority for Canadians in 2019, according to a
CIBC poll
released on Dec. 27, 2018.
Changes to CPP
Changes to the Canada Pension Plan (CPP)
remain the greatest source of confusion for pre-retirees, current retirees
and employers/workers alike. Starting in January, CPP contributions
increase to 5.1% from 4.95% on earnings between $3,500 and $57,400. This
year marks the first of five years of graduated increases running until
2023, when the rate will reach 5.95%. After this, higher earners will feel
an even greater pinch. These enhancements support the CPP program so it
remains viable for future generations. But those who pay now will see
little (if any) benefit.
How much more will these enhancements cost Canadians in 2019? According to
a report from the
Canadian Taxpayers Federation, they will take $98 annually, on average, from the take-home pay of every
employee, and that amount will continue to rise over time, until 2023.
After five consecutive years of rate increases, those making $60,000 per
year will contribute $550 more annually. But those who earn more will see
rates rise an additional 4% on top of this; and remember, self-employed
people pay both employer and employee portions. Lower Employment Insurance
premiums and other tax deductions will bring this down to an average
increase of $380 annually by 2023.
TFSA contribution increases
The allowable annual TFSA contribution rises to $6,000.
Here’s a great new year’s resolution that will pay tax-free returns in the
future: Invest as much as you can in a TFSA. As paycheques continue to
shrink due to CPP premium hikes, save sooner rather than later.
Make the RRSP contribution
This is particularly important. Financial worries are top of mind with
market volatility, debt management worries, and the reduction in take-home
pay Canadians face due to increased CPP rates. For these reasons, it’s the
right time to look ahead and take control over your retirement income plan.
Top up your RRSP contributions by Feb. 28 (18% of earned income to a
maximum of $26,230) to increase your tax refund.
Having and sticking to a tax-efficient financial plan is most important, so
be sure to consult with a qualified advisor, such as a
Real Wealth Manager,
who can review your opportunities this month and find opportunities to
preserve and grow your wealth throughout 2019.
Business tax changes continue
The new Tax on Split Income rules introduced in 2018 will affect many this
tax season. Others need to come up to speed on the potential clawback of
their Small Business Deduction due to the new passive investment income
rules that became effective Jan. 1, 2019. Business owners can generate up
to $50,000 in passive income before they start to lose access to the low
small-business tax rate of 9% (new for 2019) for the first $500,000 in
business earnings.
All of this comes on top of the immediate impact of the implementation of
the CPP premium enhancements.
According to Dan Kelly
from the Canadian Federation of Independent Business (CFIB), “Once the
rates reach their threshold limit in 2023, employers will be paying up to
$1,100 more per employee per year. Business owners will pay up to $2,200
more on the income they draw from their own business.”
A little good news
There are some positive tax and benefit changes, as many credit and benefit
amounts are also being indexed to inflation: the basic personal amount
rises to $12,069, for example.
* Employment Insurance premiums decrease
this year, to $1.62 per $100 of insurable earnings from $1.66.
*
The Canada Workers Benefit
increases
the assistance offered to low-income workers. The maximum benefit will
increase by $300-$400 (depending on single vs. family status), bringing the
maximum benefit to $1,355 for a single person or $2,335 for a single parent
or couple, depending on personal income.
*
Carbon Tax Incentive
payments
in four provinces apply this year, but new carbon taxes will impact the
cost of fuel.
* Auto expense claims increase. Some minor increases to allowable auto expense claims may also provide
some assistance to certain taxpayers, while those who use their vehicles
for business will enjoy higher CCA (Capital Cost Allowance) deductions if
the vehicle was purchased after Nov. 20, 2018.
© 2019 The Knowledge Bureau, Inc. All rights reserved. Reprinted with
permission.
Evelyn Jacks
is the founder and President of Knowledge Bureau, which
brings continuing financial education in the multiple areas of
specialization to advisors and their clients. She is the author of 52
books on tax and wealth planning. This article
originally appeared in the
Knowledge Bureau Report. Follow Evelyn Jacks on Twitter
@EvelynJacks. Visit her blog at www.evelynjacks.com.
Notes and Disclaimer
The foregoing is for general information purposes only and is the opinion
of the writer. No guarantee of investment performance is made or implied.
It is not intended to provide specific personalized advice including,
without limitation, investment, financial, legal, accounting or tax advice.