Category Archives: Corporate Tax

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2019 BC Budget

On February 19, 2019, the BC Ministry of Finance released the 2019 Provincial Budget.  The following is a summary of many of the highlights affecting businesses and individuals:

Business Measures

  • Enhanced capital cost allowance rates that parallel the federal enhancements announced on November 21, 2018.
  • Extending the BC Training tax credit for employers to December 31, 2019.

Personal Measures

  • Effective for 2018 and subsequent personal tax returns the disability tax credit can be applied against tax on split income (TOSI) and split income is included in the income threshold for calculating the medical expense tax credit.
  • No modification to the Fair Pharmacare program which introduced lower deductibles available to families earning up to $45,000 per year effective January 1, 2019.
  • Increasing benefits to low-income working families by an average of $800 per year under the Rental Assistance Program.
  • CleanBC initiatives including $2,000 to replace a fossil fuel heating system, $1,000 to upgrade to better insulated windows and doors and $700 to upgrade to a higher efficiency natural gas furnace.
  • Effective February 19, 2019 elimination of interest on new and existing loans obtained through the BC Student Loan Program.
  • Effective April 1, 2019 eligible individuals will receive an additional $50 per month in income and disability assistance.
  • Effective July 1, 2019 the BC climate action tax credit is enhanced. The BC climate action tax credit is a tax-free amount paid quarterly with the GST tax credit to eligible individuals.
  • Extending the BC training tax credit for apprentices to December 31, 2019.
  • No modification to the elimination of MSP premiums paid by individuals effective January 1, 2020.
  • Effective October 1, 2020 a new BC Child Opportunity Benefit will be introduced. This new benefit will be added to the current BC Early Childhood Tax Benefit which is a tax-free monthly payment to eligible families.

Enhancements to the Small Business Venture Capital Tax Credit Program:

  • Effective for 2019 and subsequent tax years, for investments made after February 19, 2019, the maximum amount of annual tax credit that an individual can claim is increased to $120,000 from $60,000.
  • Effective February 20, 2019, the maximum equity capital that eligible business corporations can raise under the program is increased to $10 million from $5 million.
  • Effective February 20, 2019, share transfers to a Tax-Free Savings Account are permitted and equity purchases within a Tax-Free Savings Account may qualify for tax credit.
  • Effective February 20, 2019, certain advanced commercialization and scaling up activities are eligible for the tax credit program.
  • Effective March 2, 2019, investments in convertible equity issued by an eligible business corporation may be eligible for tax credits.

 

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B.C. Minimum Wage Increases on June 1, 2019

On June 1, 2019 the B.C. general minimum wage will increase to $13.85 per hour and the B.C. liquor servers minimum wage to $12.70.

The Factsheet prepared by the B.C. Employment Standards Branch outlines the June 1, 2019 increases, the increases that will come into effect on June 1, 2020 and June 1, 2021 and the increases for those employed in B.C. as live-in home support workers, live-in camp leaders and resident caretakers.  Please note on June 1, 2021 the B.C. general minimum wage and B.C the liquor servers minimum wage will be the same – both will be increased to $15.20 per hour.

 

Canada Announces Enhanced Capital Cost Allowances

On November 21, 2018 the Minister of Finance, Bill Morneau, released the Fall Economic Statement.

This Statement included the Accelerated Investment Incentivewhich outlined a number of tax changes relating to the capital cost allowance (CCA) system (amortization of assets that may be claimed for income tax purposes).

The Accelerated Investment Incentive was introduced to allow business in Canada to deduct the cost of their investments more quickly – and therefore increasing the attractiveness of making capital investments to improve a business’ efficiency and/or to expand a business’ operations.  The intention of the Accelerated Investment Incentive is to enhance the ability of businesses in Canada to compete internationally and is a reaction to the U.S. Government’s Tax Cuts and Jobs Act of 2017.

Significant change #1 – First-year capital cost allowance

Prior to November 21, 2018, only one-half of the allowable CCA could be claimed in most asset classes in the year of acquisition. This was commonly known as the half-year rule.

From November 21, 2018 to December 31, 2023, the allowable CCA is in the year of acquisition is three times the ‘prior to November 21, 2018 rate’.

January 1, 2024 to December 31, 2027, the half-year rule does not apply in the year of acquisition.

January 1, 2028 and onward, the half-year rule is again applicable in the year of acquisition.

Please note:

  • For those CCA classes for which the half-year rule does not apply the provisions of the Accelerated Investment Incentive allow for the accelerated depreciation of these CCA classes as well.
  • After the year of acquisition, the CCA rate will return to the normal declining balance rate for the respective asset class.

Example:

Your business purchased $1,000 of equipment and you immediately began using the equipment in the business.  For income tax purposes the equipment is added to CCA class 8.  The depreciation rate of CCA class 8 is 20%.

Prior to November 21, 2018, your business would claim a $100 deduction for tax purposes in the year of acquisition ($1,000 times 20% times ½).

From November 21, 2018 to December 31, 2023, your business would claim a $300 deduction for tax purposes in the year of acquisition ($1,000 times 20% times ½ *3).

January 1, 2024 to December 31, 2027, your business would claim a $200 deduction for tax purposes in the year of acquisition ($1,000 times 20%).

January 1, 2028 and onward, your business would claim a $100 deduction for tax purposes in the year of acquisition ($1,000 times 20% times ½).

Significant change #2 – Manufacturing and processing machinery and equipment

From 2016 to November 21, 2018, a previous Ministry of Finance incentive allowed for the addition of manufacturing and processing machinery and equipment to be added to class 53 with an amortization rate of 50% per year on a declining balance basis and with the half-year rule applying in year of acquisition.

Under the Accelerated Investment Incentive:

From November 21, 2018 to December 31, 2023, the allowable CCA is in the year of acquisition is 100%.  The half-year rule does not apply.  Therefore, this allows for a full deduction in the year of acquisition.

2024 and 2025 calendar years, the allowable CCA in the year of acquisition is 75%.  The half-year rule does not apply.  For the remaining years this addition is depreciated at a rate of 50% per year on a declining balance basis in class 53.

2026 and 2027 calendar years, the allowable CCA in the year of acquisition is 55%.  The half-year rule does not apply.  For the remaining years this addition is depreciated at a rate of 30% per year on a declining balance basis in class 43.

2028 onward calendar years, the allowable CCA in the year of acquisition is 15% – as the half-year rule is reintroduced.  For the remaining years this addition is depreciated at a rate of 30% per year on a declining balance basis in class 43.

Please note:  Income Tax Folio S4-F15-C1, Manufacturing and Processing, includes the following discussion of the activities that constitute manufacturing and processing:

1.2 It may be said, however, that the manufacture of goods normally involves the creation of something (for example, making or assembling machines, clothing, soup) or the shaping, stamping, or forming of an object out of something (for example, making steel rails, wire nails, rubber balls, wood moulding). On the other hand, processing of goods usually refers to a technique of preparation, handling, or other activity designed to effect a physical or chemical change in an article or substance, other than natural growth. Examples of such activities are galvanizing iron, creosoting fence posts, dyeing cloth, dehydrating foods, and homogenizing and pasteurizing dairy products.

1.3 In Tenneco Canada Inc. v The Queen, [1991] 1 CTC 323, 91 DTC 5207, the Federal Court of Appeal indicated that the two tests for determining whether a taxpayer is engaged in processing are:

  • whether there is a change in the form, appearance, or other characteristics of the goods subject to the operation; and
  • whether the product becomes more marketable.

1.4 The activities of breaking bulk and repackaging for subsequent resale where there is a systematic procedure to make a product more marketable are generally considered to be processing. However, the filling of orders from bulk inventories is not viewed as processing where the activities involved are nothing more than counting or measuring and packaging.”

2019 Change in CPP and EI rates AND the introduction of B.C. Employer Health Tax

Increase in CPP rates

CPP rates will increase gradually from 2019 to 2025.

In 2018 and prior years, CPP retirement benefits were intended to replace one quarter of a taxpayer’s average work earnings.  The purpose of the CPP rate increases is to have CPP retirement benefits replace one third of a taxpayer’s average work earnings.

Phase one of the CPP rate increase will have the current CPP rate of 4.95% increase by the following increments:

2019: 0.15%

2020: 0.15%

2021: 0.20%

2022: 0.25%

2023: 0.25%

By the end of the series of increases, the 4.95% contribution rate will have increased to 5.95%.

Phase two of the CPP rate increase will require a 4% premium to be paid on earnings in excess of the year’s maximum pensionable earnings (YMPE) up to 107% of the YMPE.

For example, if the YMPE is $70,100 in 2024, the additional limit will be $75,007.  The 4% rate will be applied to the difference between the $75,007 and the YMPE of $70,100 ($4,907) – resulting in $196.28 in additional premiums payable.

For 2025 and later calendar years, the 107% multiplier will be increased to 114%.

Change in EI Rates

Employment Insurance rates will be reduced to 1.62% in 2019.  This is a decrease of 0.04% from the 2018 rate of 1.66%.

The maximum insurable earnings for 2019 is $53,100.  The maximum insurable earnings in 2018 was $51,700.

The maximum employee premiums for 2019 will be $860.22 – this is an increase of $2.00 compared with 2018.  The maximum employer premium will be $1,204.31 – this is an increase of $2.80 compared with 2018.

Introduction of B.C. Employer Health Tax

The B.C. Employer Heath Tax (EHT) comes into effect on January 1, 2019.

The purpose of the B.C. EHT is to replace the revenue derived from Medical Service Plan premiums previously paid by residents of B.C.  Although residents of B.C. have had their MSP premiums reduced by 50%, it is the B.C. government’s intention to eliminate MSP premiums paid by residents of B.C. by 2020.

Employers with remuneration of $500,000 or less are exempt from EHT.

Employers with B.C. remuneration between $500,001 and $1,500,000 pay a reduced tax of 2.925% of the portion of B.C. remuneration that is above the $500,000 exemption.

Employers with B.C. remuneration greater than $1,500,000 pay tax at 1.5% of the total B.C. remuneration.

If you are associated with other employers, you must share the $500,000 exemption with the other employers.

How to register: Registration begins on January 7, 2019 and should be completed through your eTaxBC account.

When to remit: Using the lessor of your 2018 BC remuneration paid and your estimated 2019 BC remuneration, calculate your 2019 employer health tax liability.   If your employer health tax liability is greater than $2,925, you are required to make quarterly instalments on or before the following dates: June 15th, Sept 15th, Dec 15th and March 31st with the filing of the EHT return.

When to file the EHT return:  On or before March 31st each year.  The 2019 EHT return will be due on March 31, 2020.

Be a Santa and not a Scrooge to your staff

T’is the time of year to thank your employees for their hard work and dedication.  You may do this with gifts and a holiday party.  As you want to be a Santa and not a Scrooge, it is important to plan the gifts and social event so that they are not considered taxable benefits according to the Income Tax Act and consequently included in your employees’ employment income for the year.

Here are some of the main points:
All cash or near-cash gifts (i.e. gift certificates or gift cards) are considered taxable benefits.
If an employee receives non-cash gifts during the year with a value of $500 or less, the non-cash gifts are not considered a taxable benefit. 
If the value of the non-cash gifts received by an employee during the year total $600, then the employee will be deemed to have received a taxable benefit of $100 ($600 less $500).
Holiday parties in which all employees are invited and cost $100 or less per person are not considered a taxable benefit. 
If the holiday party costs $200 per person, the entire cost of the holiday party is considered a taxable benefit.