Tax changes for small businesses in 2019: What you need to know

In the new year, only three things are certain: death, taxes and resolutions. Assuming you’re not dead (you are, after all, reading this), now is a good time to focus on the other two, and resolve to inform yourself on the tax changes that were ushered in along with 2019.

As always, it’s good news balanced by not so good news. Ok, it probably weighs a little heavier on the “not-so-great-side”. But then again, has there ever been a year in the history of government and taxes where any citizen or business owner has responded, “That’s awesome!! Thank you!!”

Yeah, I thought not.

So here it is.

Good: The federal government is reducing the small business tax rate from 10 per cent to 9 per cent.

Effective January 2018, the small business tax went from 10.5 per cent to 10 per cent. The Government of Canada slashed it one more per cent, effective this January, which means the combined federal-provincial-territorial average income tax rate for small businesses in Canada is 12.2 per cent, the lowest in the G7 and the fourth lowest among members of the Organization for Economic Co-operation and Development.

Not so good: every dollar you earn from passive income over $50,000 – like rent, investments or interest – cuts revenue eligible for the small business tax by five dollars.

This is a painful point for small businesses owners who may have been saving money for a large purchase. If you’ve been setting aside money for renovations, or maybe an expensive piece of equipment, anything over the $50,000 threshold will bring you a higher tax bill.

Some good news: lower EI payments.

Canada’s lower unemployment rate, which has dropped to 40-year lows, means fewer Canadians are drawing EI. And that means, starting January 1, employers are paying less in EI contributions. Employees will pay less too, with their contributions dropping by four cents per $100 of insurable earnings. (Employers pay 1.4 times that.)

But: CPP is going up.

The federal government is gradually “topping up” CPP over the next seven years by increasing contributions. In the end, this is good news for employees. While the amount taken off their pay cheques is more, when they’re eligible, they’ll receive one-third of their average work earnings, up from one quarter now. For employers, it means you’re paying more CPP for each of your employees. And if you’re self-employed, you’ll actually be paying more…twice.

And then there’s the carbon tax.

Starting April 1, provinces that haven’t already adopted their own carbon taxes, cap-and-trade systems or other plans for carbon pricing will be taxed by the federal government. This includes Ontario, Manitoba, Saskatchewan and New Brunswick. (Saskatchewan and Ontario are jointly challenging the federal carbon tax plan.) Everyone has their own opinions on the carbon tax, but what’s certain is it’s going to cost everyone more money. You can learn more about carbon tax and rates here.

Let’s end this on a high(ish) note. In the Government of Canada’s 2018 Fall Economic Statement, it made three changes to the tax system that will give businesses a little help. The changes apply to qualifying assets acquired after November 20, 2018 and will:

· Allow businesses to write off the full cost of machinery and equipment used for manufacturing and processing goods;

· Allow businesses to write off the full cost of specified clean energy equipment; and

· Through the Accelerated Investment Incentive, allow all sizes of businesses in all sectors to write off a larger share of the cost of newly acquired assets in the year the investment is made.

You can learn more about Canada’s 2019 tax changes on their website.

Happy new year!

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