2019 Federal Budget Summary
Written by: Monica Alimchandani, CPA, CA, MTax, TEP, Partner at Sone Rovet Chasson LLP
The election year budget of the Trudeau government was delivered on March 19, 2019. Given the broadening of the personal tax on split income measures and the small business deduction limit grind for small to medium sized businesses earning passive income introduced from last year’s budget, many were hoping this year’s budget would provide some “goodies”.
Even though the 2019 Federal Budget did not propose any changes to the personal, corporate or indirect tax rates, it did however; target all electoral constituents – millennials, workers, seniors and businesses.
Here are the highlights:
- Support for SR&ED activities of small to medium sized businesses for the 35% investment tax credit improved by eliminating the use of taxable income as a factor in determining the expenditure limit. Thereby, small CCPCs with taxable capital below $10 million will not be required to reduce taxable income via bonuses to $500,000 to gain access to the enhanced 35% tax credit;
- Support for Canadian journalism by allowing eligible journalism organizations to register as qualified donees for charitable donation tax purposes, and qualifying for a 25% refundable labour tax credit on salaries and wages paid of up to $55,000 per eligible newsroom employee per year;
- Encouraging businesses to purchase zero-emission vehicles by allowing a capital cost allowance pool of 100% in the year of purchase of such vehicles, with a phase out starting in 2024. For passenger vehicles (currently class 10 or 10.1), new class 54 will be created, with a limit of $55,000 plus sales tax per vehicle. For taxi cabs, vehicles used for short-term rentals and trucks designed for hauling freight (currently class 16), new class 55 will be created;
- Annual cap for employee stock option grants of $200,000 based on the fair market value of the underlying shares for well-established and mature businesses. Further details will be released before the summer of 2019;
- Income from sales of farming products or fishing catches of a corporation’s farming or fishing business to any arm’s length corporation will now qualify for the small business deduction;
- Continue to develop new proposals to better accommodate intergenerational business transfers being passed on to children, while protecting the integrity and fairness of the tax system.
- RRSP limit withdrawal for first-time home buyer’s program increases to $35,000 from $25,000;
- A “First-Time Home Buyer Incentive” that will be managed by the Canada Mortgage and Housing Corporation (“CMHC”), which would see CMHC put up 10% of the price of a newly constructed home and 5% of an existing home, and share in the homeowner’s equity. The measure would effectively reduce monthly costs of mortgage payments and would be repayable once the main mortgage is paid off or the home is sold, and would only apply to first-time homebuyers with household incomes below $120,000. More details will be released by the fall of 2019;
- Credit of up to $5,000 for purchases of electric battery or hydrogen fuel cell vehicles under $45,000;
- Interest rate on Canada Student Loans and Canada Apprenticeship Loans lowered to prime and will be interest-free for 6 months after graduation;
- Low-income working seniors can earn more without giving up Guaranteed Income Supplement benefits;
- Personalized Canada Training Credit of $250 a year (up to $5,000 lifetime) for eligible workers aged 25 to 64 for job retraining; and a new Employment Insurance Training Support Benefit to provide income support while taking time off work for skills training;
- Change in use rules introduced for multi-unit residential properties (e.g. a duplex) that allows a taxpayer to elect out of the deemed disposition rules when one of the units is converted from residential to rental and vice versa;
- New temporary non-refundable 15% tax credit of up to $500 in costs paid annually for subscriptions made to Canadian digital news;
- Removal of the requirement that property must be of “national importance” to qualify for the enhanced tax incentives for donations of cultural property;
- For RDSPs, removal of the time limitation that a RDSP may remain open after a beneficiary becomes ineligible for the disability tax credit and to eliminate the requirement for medical certification that the beneficiary is likely to become eligible for the disability tax credit in the future in order for the RDSP to remain open.