Most Canadian taxpayers can “breathe easy” this year according to the Canadian Taxpayers Federation, with no dramatic tax changes in the pipeline. However, the majority of families face a higher tax burden beyond 2018 when payroll tax changes are phased in, while the tax outlook remains uncertain for small businesses.
Minor Changes For 2018
In its recent annual report on tax policy changes, the CTF said that there will be only minor changes to federal taxes in 2018, with Employment Insurance premiums rising from 1.63% to 1.66%, and the Canada Child Benefit to be inflation-indexed from July 2018.
At provincial level, Saskatchewan, Prince Edward Island, and Nova Scotia will not index their tax brackets in 2018, while Ontario will not index its top-two tax brackets.
New Brunswick, meanwhile, will index its tax brackets to federal, as opposed to provincial, inflation. The CTF said that as inflation in New Brunswick was higher than the national average, taxpayers in the province will see a net rise in tax as a result of so-called bracket creep.
Elsewhere, British Columbia's health tax was reduced by 50% on January 1. However, the province increased the tax rate on income over CAD150,000 (EUR98,000) from 14.7% to 16.8%.
Uncertainty For Businesses
As regards business taxation, the CTF said that there is "still considerable uncertainty” both with respect to the Trudeau Government's controversial small business tax proposals, and due to recent dramatic corporate tax in the United States, which could affect Canada’s competitiveness.
Canada's federal Government has proposed lowering the small business tax rate from 10.5% to 10% from 1 January 2018, and to 9% from January 2019. However, it is forging ahead with plans to restrict the use of “income sprinkling” by private corporations. This measure is intended to restrict the diversion of income from a high-income individual to family members with lower personal tax rates, or to family members who may not be taxable at all from 1 January 2018.
Payroll Tax Hit Beyond 2018
While the Canadian tax burden remains largely unchanged this year, the Fraser Institute has pointed out that Canada Pension Plan (CPP) payroll tax increases will affect more than 90% of Canadian families with children.
The Institute said in a recent report that, assuming the CPP increases were fully implemented today, in addition to the personal income tax changes already in place, 92.2% of families would pay higher taxes. It added that this figure would rise to 98.8% in the case of middle-income families.
The CPP is a contributory public pension plan that provides a basic level of earnings replacement in retirement. It is financed by employer, employee, and self-employed contributions, as well as income earned on CPP investments. The current contribution rate is 9.9% of earnings, shared between employer and employee contributions, and levied on income between a basic exemption of CAD3,500 and a set Year's Maximum Pensionable Earnings.
According to the Institute, as a result of changes agreed in 2016, and to be phased in from 2019 to 2025, families will, on average, pay CAD2,218 more, with middle-income families paying CAD2,260 more on average, and the highest earners expected to pay an average of CAD4,373 more.
It may be the case that the CPP changes will be offset by future changes elsewhere in the tax system in the coming years. Indeed, shifting the tax burden from the middle class to the wealthy is a key policy of the Trudeau administration. Yet, there are few signs of substantial tax cuts down the track.