Fall Economic Statements: Ontario First, then the Federal Government

The Fall Economic Statement from the federal government is being released later today – Wednesday, November 21. Knowledge Bureau Report will bring you breaking news and insights in a special report tomorrow! Meanwhile, Ontario made some interesting tax changes.

There’s been much anticipation of this latest federal update, particularly from Canadian business owners waiting for clarification on how Morneau will address personal and corporate taxation issues, especially in light of recent U. S. tax reforms and the USMCA negotiations and their effect on Canada’s competitiveness. The Department of Finance reported that in the second quarter of 2018, growth surged to 2.9 percent from 1.4 percent in the first quarter; and the employment rate, currently sitting at 6 percent, is at a four-year low. It will be interesting to see whether Morneau will follow the lead of the U.S. with regards to policies for writing off capital expenditures, given these recent positive trends in Canada.

It’s expected that, in addition to the corporate taxation issues, this Fall Economic Statement will expand upon the Federal Pollution Pricing System, which includes the Climate Action Incentive to reduce the carbon tax burden, when it’s introduced in April of 2019. The deduction criteria were previously outlined in the Notice of Ways and Means Motion tabled with the House of Commons on October 25.

Meanwhile, Ontario released its Fall Fiscal Update – the first from the Ford Government – last Thursday, November 15. Its provisions placed emphasis upon reducing the province’s deficit and making Ontario more affordable for individuals, families and businesses.

The most notable proposal is the Low-Income Individuals and Families Tax (LIFT) Credit. If implemented, those making less than $30,000 per year (i.e., those working full time at minimum wage) would pay no Ontario Personal Income Tax as a result of this pre-paid benefit. The Ontario government estimates that this benefit would be accessible to 1.1 million people in the province, which equates to one in six taxpayers. On average, those eligible would also receive $450 in tax relief, with many receiving up to $850 per individual or $1,700 per household. More information will be provided on this in tomorrow’s special report. Note that this tax relief is for employment income only so seniors, for example, who earn a meager $30,000 from pensions and investment will continue to pay provincial taxes on that income.

Other changes:

Non-Refundable Credit Changes – retroactive to Jan 1, 2018:

• Pension income amount – amounts received under the Veterans Well Being Act will now be eligible pension income
• Transfer of credits to spouse and the amount for infirm dependants will now be limited to provincial tax payable before OHIP
• TOSI (Tax on Split Income) will be reduced by amounts claimed for physical or mental impairment (including claims for dependants with such impairments)
• Tax credit rate for other than eligible dividends will be changed from 3.1197% to 3.2863% of the taxable dividend

Corporate Tax Change – Ontario will allow the small business deduction regardless of passive income (i.e. Ontario will not follow the federal changes).

Alcohol Taxes – the proposed increase in tax on beer and wine effective Nov 1. 2018 is cancelled.

Stay tuned to Knowledge Bureau Report for a full outline of today’s Fall Economic Statement, as well as strategies and interpretations to help your clients remain tax-efficient and maximize their income in this changing and uncertain economy.

Additional educational resources: Your personal and corporate clients need your help – especially your small-business clients who keep acquiring new tax-audit risks. Learn how to stay ahead of the curve and provide sound advice as you confront each change and challenge that comes. Enroll in the MFA – Business Tax Services Specialist program.

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