2019 Federal Budget Commentary
On March 19, 2019, federal Finance Minister Bill Morneau tabled the Liberal government’s highly anticipated budget – the final one before the October 2019 election.
After accounting for Budget 2019 proposals, the budgetary balance is expected to show deficits of $14.9 billion in 2018-2019 and $19.8 billion in 2019-2020. Over the remainder of the forecast horizon, deficits are expected to decline gradually from $19.7 billion in 2020-2021 to $9.8 billion in 2023-2024. The federal debt-to-GDP ratio is also expected to decline every year over the forecast horizon, reaching 28.6% by 2023–2024.
Budgetary revenues are expected to increase by 6.7% in 2018-2019. Over the remainder of the forecast horizon, revenues are projected to grow at an average annual rate of 3.5%, in line with projected growth in nominal GDP.
There were no changes to personal or corporate income tax rates.
The following is a summary of tax changes announced in the budget. Please note that these changes are proposals until passed into law by the federal government.
Personal Tax Matters
Personal Income Tax Rates and Tax Brackets
There were no proposed changes to personal income tax rates. The table below shows the highest marginal federal tax rates for various types of income in 2019.
Type of income
2019 tax rates
Regular income
33.0%
Capital gains
16.5%
Eligible dividends
24.8%
Non-eligible dividends
27.6%
Canada Training Benefit
Budget 2019 proposes to establish a new Canada Training Benefit consisting of two key components – a Canada Training Credit to help with the cost of training fees and an Employment Insurance (EI) Training Support Benefit to provide income support.
Canada Training Credit
The new Canada Training Credit is a refundable tax credit for up to half of eligible tuition and fees associated with training. $250 will accumulate each year in a notional account for eligible individuals who:
- file a tax return for the year;
- are at least 25 years old and less than 65 years old at the end of the year;
- are resident in Canada throughout the year;
- have earnings (including income from employment, self-employment and certain employment insurance benefits) of $10,000 or more in the year; and
- have individual net income for the year that does not exceed the top of the third tax bracket for the year ($147,667 in 2019).
Individuals will be able to accumulate up to a maximum amount of $5,000 over a lifetime. Any unused balance will expire at the end of the year in which an individual turns 65.
Tuition and other fees eligible for the Canada Training Credit will generally be the same as under the existing rules for the Tuition Tax Credit. Unlike the Tuition Tax Credit, for purposes of the Canada Training Credit, eligible educational institutions will not include institutions outside of Canada.
This measure will apply to the 2019 and subsequent taxation years (i.e. the accumulation to the notional account will start based on eligibility for the 2019 taxation year and the credit will be available to be claimed for expenses for the 2020 taxation year). Earning and income thresholds will be subject to annual indexation.
Employment Insurance (EI) Training Support Benefit
This benefit is expected to be launched in late 2020. It will be available through the EI program and will provide up to four weeks of income support, every four years. This support will be paid at 55% of a person’s average weekly earnings and is designed to help workers cover living expenses, while on training.
Home Buyers’ Plan
The home buyers’ plan (HBP) allows first-time home buyers to withdraw up to $25,000 from a registered retirement savings plan (RRSP) to purchase or build a home without having to pay tax on the withdrawal.
Budget 2019 proposes to increase the HBP withdrawal limit to $35,000 from $25,000. As a result, a couple will potentially be able to withdraw up to $70,000 from their RRSPs to purchase a first home.
This increase will apply to the 2019 and subsequent calendar years. Budget 2019 also proposes to extend access to the HBP to help Canadians maintain home ownership after the break down of a marriage or common-law partnership.
Employee Stock Options
The current tax rules provide employee stock options with preferential income tax treatment in the form of a stock option deduction that effectively results in the entire benefit being taxed at a rate equal to one-half of the normal rate of personal taxation, the same rate as capital gains.
The budget proposes a $200,000 annual cap on employee stock option grants that may receive tax-preferred treatment for employees of large, long-established, mature firms. For start-ups and growing Canadian businesses, employee stock option benefits would remain uncapped.
Additional details regarding this measure will be released before the summer of 2019. Any changes would apply on a go-forward basis only and would not apply to employee stock options granted prior to the announcement of legislative proposals.
Canada Student Loans – Interest-Free Grace Period
Budget 2019 proposes to amend the Canada Student Financial Assistance Act, so that student loans will not accumulate any interest during the six-month non-repayment period (the “grace period”) after a student loan borrower leaves school.
Change in Use Rules for Multi-Unit Residential Properties
The Income Tax Act deems a taxpayer to have disposed of, and reacquired, a property when the taxpayer converts the property from an income-producing use (e.g., a rental property) to a personal use (e.g., a residential property) or vice versa. Where the use of an entire property is changed, the taxpayer may elect that this deemed disposition not apply. Consequently, the election can provide a deferral of the realization of capital gains until the property is sold in the future. In certain cases, where an election is made, the property can be designated as a taxpayer’s principal residence for an additional period of up to four years before or after the period for which the taxpayer could otherwise claim the exemption.
The deemed disposition also occurs when the use of part of a property is changed. However, under the current rules, a taxpayer cannot elect out of the deemed disposition that arises on a partial change in use of a property. Budget 2019 proposes to allow a taxpayer to elect that the deemed disposition that normally arises on a partial change in use of a property not apply. This measure will apply to changes in use of property that occur on or after March 19, 2019.
Registered Disability Savings Plan – Cessation of Eligibility for the Disability Tax Credit
The current rules generally require that a registered disability savings plan (RDSP) be closed within a short time period once the beneficiary of the RDSP is not eligible for the disability tax credit (DTC). The plan holder may elect to keep the RDSP open for an additional four years; however, a medical practitioner must certify that the nature of the beneficiary’s condition makes it likely that the beneficiary will, because of the condition, be eligible for the DTC in the foreseeable future.
Budget 2019 proposes to remove the time limitation on the period that a Registered Disability Savings Plan (RDSP) may remain open after a beneficiary becomes ineligible for the DTC. It also proposes to eliminate the requirement for medical certification that the beneficiary is likely to become eligible for the DTC in the future in order for the plan to remain open.
The general rules that currently apply in respect of a period during which an election is valid will continue to apply to the RDSP in any period during which the beneficiary is ineligible for the DTC. If a beneficiary regains eligibility for the DTC, the regular RDSP rules will apply commencing with the year in which the beneficiary becomes eligible for the DTC.
Budget 2019 also proposes to exempt RDSPs from seizure in bankruptcy, with the exception of contributions made in the 12 months before the filing.
This measure will apply after 2020. An RDSP issuer will not be required to close an RDSP on or after Budget Day and before 2021 solely because the RDSP beneficiary is no longer eligible for the DTC.
Corporate Tax Matters
Corporate Income Tax Rates
There were no proposed changes to federal corporate income tax rates or the small business limit for 2019. The table below shows federal tax rates and the small business limit for 2019.
Category
2019 tax rates
General rate
15.0%
Manufacturing & processing rate
15.0%
Small business rate
9.0%
Small business limit
$500,000
We can help
Your Assante advisor can help you assess the impact of these proposals on your personal finances or business affairs and show you ways to take advantage of their benefits or ease their impact. The resources available to you and your advisor include Assante Private Client’s Wealth Planning Group, a multi-disciplinary team of accountants, lawyers and financial planners.
This communication is published by Assante Wealth Management (Canada) Ltd. (“AWM”) as a general source of information only. It should not be construed as providing specific tax, accounting, legal or investment advice, and should not be relied upon as such. Professional advisors should be consulted prior to acting on the basis of any information provided herein. AWM and its affiliates will not be responsible in any manner for direct, indirect, special or consequential damages, howsoever caused, arising out of the use of this communication. Facts and data provided herein are believed to be reliable as at the date of publication, however AWM cannot guarantee that they are accurate or complete or that they will remain current at all times.
On March 19, 2019, federal Finance Minister Bill Morneau tabled the Liberal government’s highly anticipated budget – the final one before the October 2019 election.
After accounting for Budget 2019 proposals, the budgetary balance is expected to show deficits of $14.9 billion in 2018-2019 and $19.8 billion in 2019-2020. Over the remainder of the forecast horizon, deficits are expected to decline gradually from $19.7 billion in 2020-2021 to $9.8 billion in 2023-2024. The federal debt-to-GDP ratio is also expected to decline every year over the forecast horizon, reaching 28.6% by 2023–2024.
Budgetary revenues are expected to increase by 6.7% in 2018-2019. Over the remainder of the forecast horizon, revenues are projected to grow at an average annual rate of 3.5%, in line with projected growth in nominal GDP.
There were no changes to personal or corporate income tax rates.
The following is a summary of tax changes announced in the budget. Please note that these changes are proposals until passed into law by the federal government.
Personal Tax Matters
Personal Income Tax Rates and Tax Brackets
There were no proposed changes to personal income tax rates. The table below shows the highest marginal federal tax rates for various types of income in 2019.
|
Type of income |
2019 tax rates |
|
Regular income |
33.0% |
|
Capital gains |
16.5% |
|
Eligible dividends |
24.8% |
|
Non-eligible dividends |
27.6% |
Canada Training Benefit
Budget 2019 proposes to establish a new Canada Training Benefit consisting of two key components – a Canada Training Credit to help with the cost of training fees and an Employment Insurance (EI) Training Support Benefit to provide income support.
Canada Training Credit
The new Canada Training Credit is a refundable tax credit for up to half of eligible tuition and fees associated with training. $250 will accumulate each year in a notional account for eligible individuals who:
- file a tax return for the year;
- are at least 25 years old and less than 65 years old at the end of the year;
- are resident in Canada throughout the year;
- have earnings (including income from employment, self-employment and certain employment insurance benefits) of $10,000 or more in the year; and
- have individual net income for the year that does not exceed the top of the third tax bracket for the year ($147,667 in 2019).
Individuals will be able to accumulate up to a maximum amount of $5,000 over a lifetime. Any unused balance will expire at the end of the year in which an individual turns 65.
Tuition and other fees eligible for the Canada Training Credit will generally be the same as under the existing rules for the Tuition Tax Credit. Unlike the Tuition Tax Credit, for purposes of the Canada Training Credit, eligible educational institutions will not include institutions outside of Canada.
This measure will apply to the 2019 and subsequent taxation years (i.e. the accumulation to the notional account will start based on eligibility for the 2019 taxation year and the credit will be available to be claimed for expenses for the 2020 taxation year). Earning and income thresholds will be subject to annual indexation.
Employment Insurance (EI) Training Support Benefit
This benefit is expected to be launched in late 2020. It will be available through the EI program and will provide up to four weeks of income support, every four years. This support will be paid at 55% of a person’s average weekly earnings and is designed to help workers cover living expenses, while on training.
Home Buyers’ Plan
The home buyers’ plan (HBP) allows first-time home buyers to withdraw up to $25,000 from a registered retirement savings plan (RRSP) to purchase or build a home without having to pay tax on the withdrawal.
Budget 2019 proposes to increase the HBP withdrawal limit to $35,000 from $25,000. As a result, a couple will potentially be able to withdraw up to $70,000 from their RRSPs to purchase a first home.
This increase will apply to the 2019 and subsequent calendar years. Budget 2019 also proposes to extend access to the HBP to help Canadians maintain home ownership after the break down of a marriage or common-law partnership.
Employee Stock Options
The current tax rules provide employee stock options with preferential income tax treatment in the form of a stock option deduction that effectively results in the entire benefit being taxed at a rate equal to one-half of the normal rate of personal taxation, the same rate as capital gains.
The budget proposes a $200,000 annual cap on employee stock option grants that may receive tax-preferred treatment for employees of large, long-established, mature firms. For start-ups and growing Canadian businesses, employee stock option benefits would remain uncapped.
Additional details regarding this measure will be released before the summer of 2019. Any changes would apply on a go-forward basis only and would not apply to employee stock options granted prior to the announcement of legislative proposals.
Canada Student Loans – Interest-Free Grace Period
Budget 2019 proposes to amend the Canada Student Financial Assistance Act, so that student loans will not accumulate any interest during the six-month non-repayment period (the “grace period”) after a student loan borrower leaves school.
Change in Use Rules for Multi-Unit Residential Properties
The Income Tax Act deems a taxpayer to have disposed of, and reacquired, a property when the taxpayer converts the property from an income-producing use (e.g., a rental property) to a personal use (e.g., a residential property) or vice versa. Where the use of an entire property is changed, the taxpayer may elect that this deemed disposition not apply. Consequently, the election can provide a deferral of the realization of capital gains until the property is sold in the future. In certain cases, where an election is made, the property can be designated as a taxpayer’s principal residence for an additional period of up to four years before or after the period for which the taxpayer could otherwise claim the exemption.
The deemed disposition also occurs when the use of part of a property is changed. However, under the current rules, a taxpayer cannot elect out of the deemed disposition that arises on a partial change in use of a property. Budget 2019 proposes to allow a taxpayer to elect that the deemed disposition that normally arises on a partial change in use of a property not apply. This measure will apply to changes in use of property that occur on or after March 19, 2019.
Registered Disability Savings Plan – Cessation of Eligibility for the Disability Tax Credit
The current rules generally require that a registered disability savings plan (RDSP) be closed within a short time period once the beneficiary of the RDSP is not eligible for the disability tax credit (DTC). The plan holder may elect to keep the RDSP open for an additional four years; however, a medical practitioner must certify that the nature of the beneficiary’s condition makes it likely that the beneficiary will, because of the condition, be eligible for the DTC in the foreseeable future.
Budget 2019 proposes to remove the time limitation on the period that a Registered Disability Savings Plan (RDSP) may remain open after a beneficiary becomes ineligible for the DTC. It also proposes to eliminate the requirement for medical certification that the beneficiary is likely to become eligible for the DTC in the future in order for the plan to remain open.
The general rules that currently apply in respect of a period during which an election is valid will continue to apply to the RDSP in any period during which the beneficiary is ineligible for the DTC. If a beneficiary regains eligibility for the DTC, the regular RDSP rules will apply commencing with the year in which the beneficiary becomes eligible for the DTC.
Budget 2019 also proposes to exempt RDSPs from seizure in bankruptcy, with the exception of contributions made in the 12 months before the filing.
This measure will apply after 2020. An RDSP issuer will not be required to close an RDSP on or after Budget Day and before 2021 solely because the RDSP beneficiary is no longer eligible for the DTC.
Corporate Tax Matters
Corporate Income Tax Rates
There were no proposed changes to federal corporate income tax rates or the small business limit for 2019. The table below shows federal tax rates and the small business limit for 2019.
|
Category |
2019 tax rates |
|
General rate |
15.0% |
|
Manufacturing & processing rate |
15.0% |
|
Small business rate |
9.0% |
|
Small business limit |
$500,000 |
We can help
Your Assante advisor can help you assess the impact of these proposals on your personal finances or business affairs and show you ways to take advantage of their benefits or ease their impact. The resources available to you and your advisor include Assante Private Client’s Wealth Planning Group, a multi-disciplinary team of accountants, lawyers and financial planners.
This communication is published by Assante Wealth Management (Canada) Ltd. (“AWM”) as a general source of information only. It should not be construed as providing specific tax, accounting, legal or investment advice, and should not be relied upon as such. Professional advisors should be consulted prior to acting on the basis of any information provided herein. AWM and its affiliates will not be responsible in any manner for direct, indirect, special or consequential damages, howsoever caused, arising out of the use of this communication. Facts and data provided herein are believed to be reliable as at the date of publication, however AWM cannot guarantee that they are accurate or complete or that they will remain current at all times.