Fall Economic Statement: Low Earners Benefit from Strong Economy

On October 24, 2017, Finance Canada issued the Fall Economic Statement, which forecasts better-than-expected economic growth, at least in the shorter term.  The resulting increase in tax revenues have blessed the department with new funds for spending priorities; notably to help families with children and the working poor.

Specifically, the government is projecting an increase in tax revenues of $46.6 billion over the next five years.  About $14.5 billion of that will be earmarked to increased benefits for lower income families.  The remainder will go to reduce the projected deficits over that period.  Here are the details:

Indexation of Canada Child Benefits. A large portion of that money will go to indexation of the Canada Child Benefit, a tax free refundable amount. It’s income-tested so a tax return must be filed to get it.

The new benefit structure was introduced for the July 2017 to June 2018 benefit year and was originally not set to be indexed until 2020.  The government has now pledged to initiate indexation of the benefit beginning in July 2018.  Although the rate has yet to be announced, it is expected that benefits will increase by 1.5% as will the clawback thresholds.  This will amount to an increase of $9.00 (or less) per month per child, beginning in July 2018.

Increased Working Income Tax Benefit. The government also pledged to increase the Working Income Tax Benefit effective for 2019. Details of the enhancements are expected in the 2018 Federal Budget.  These increases will be in addition to the increases already planned because of changes to the Canada Pension Plan contribution rates.

Specifically, the 2019 WITB is expected to provide a benefit of 26% (up from 25%) of income over $3,000.  The maximum benefit is $1,192 for individuals and $2,165 for families. The benefit will be clawed back at 14% (reduced from 15%) when net income exceeds $12,256 for individuals or $16,925 for families.  This will result in benefits for individuals with income up to $20,770 and up to $32,389 for families.

Small Business Rate Changes.  The economic statement also reiterated the revised small business tax changes that were announced last week:

• A rate reduction from 10.5% to 10.0% for small business taxes effective January 1, 2018 and a further reduction to 9.0% on January 1, 2019.
• Revised rules for the limitation of dividend sprinkling to family members who are not active in the business (Details to be announced later this fall).
• The implementation of complex rules for taxation of passive income over $50,000 earned in a corporation.  (Details to be announced in the 2018 Federal Budget.)
• No changes to the rules for the Lifetime Capital Gains Exemption.
• No changes to the rules regarding conversion of business income to capital gains.

Additional educational resources: Online certificate courses:  DFA-Tax Services Specialist Designation Program, Certificate Course Advising Family Businesses, and T2 Tax Preparation for Small Business.  For peer-to-peer learning with expert instructors, attend the Knowledge Bureau regional workshops on recent tax changes for year end planning and owner-managers and their families:  click on  CE Summits

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