Canada’s Government, which secured another term in October 2019 elections, has set out its plans for tax reform.
As promised, Prime Minister Justin Trudeau said the Government’s first action would be to “cut taxes for all but the wealthiest Canadians.” This article looks at the most pressing changes to Canada’s tax system, many of which took effect from January 1.
The headline change for individuals is a government commitment to significantly raise the personal income tax-exempt allowance, from CAD12,298 on election day to CAD15,000 by 2023. This began with a hike to the threshold to CAD13,229 at the beginning of this year.
According to the Canadian Taxpayers Federation, the change will increase the take-home income of most Canadians earners by about CAD138 this year.
The Government is pursuing other tax policy agendas, including supporting home owners, reforming pensions rules, and reforming the tax treatment of media, including digital media.
Despite pressure from the US for countries to drop proposals for such levies, the Government remains committed to introducing a digital services tax from April 1.
According to the Finance Department, the Government's priorities are
"strengthening the middle class and growing the economy, fighting and preparing for climate change and protecting the environment, keeping Canadians safe and healthy, and continuing the work towards reconciliation with Indigenous Peoples."
2020 Tax Changes
A number of tax changes entered into force on January 1, 2020, including help for first-time buyers and reforms to pension taxation.
First-time Buyers' Relief
The HBP helps first-time buyers save for a down payment by allowing them to withdraw up to CAD35,000 from a registered retirement savings plan to purchase or build a home without having to pay tax on the withdrawal.
As of this year, individuals who experience a breakdown of a marriage or common-law partnership – in the year of making a withdrawal or in any of the four preceding calendar years – will be able to access the HBP, even if they do not meet the first-time home buyer requirement.
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Pension Tax Changes
For the 2020 and subsequent tax years, two new types of annuities will be permitted under the tax rules for certain registered retirement savings plans.
Purchases of advanced life deferred annuities are permitted from a registered retirement savings plan, registered retirement income fund, deferred profit sharing plan, pooled registered pension plan (PRPP), and defined contribution registered pension plan (RPP). Variable payment life annuities are now permitted under a PRPP, or a defined contribution RPP.
The tax rules have been amended to prohibit contributions to a Specified Multi-Employer Plan (SMEP) in respect of a member after the end of the year the member attains 71 years of age and to a defined benefit provision of a SMEP if the member is receiving a pension from the plan (except under a qualifying phased retirement program).
The changes are intended to ensure that employers do not make pension contributions on behalf of older SMEP members in these situations from which they cannot benefit.
Tax Breaks For Media Publications
To support Canadian journalism, individuals will be permitted to claim up to CAD500 in costs paid towards eligible digital subscriptions in a taxation year, for a maximum tax credit of CAD75 annually. The credit will be available in respect of eligible amounts paid after 2019 and before 2025.
In addition, certain journalism organisations operating on a not-for-profit basis will be allowed to register under a new category of tax-exempt qualified donee. Canadians may claim the charitable donation tax credit (for individuals) or deduction for donations (for corporations) for donations to qualified donees.
Foreign Affiliates Reporting
Changes to reporting requirements for foreign affiliates will be introduced. The information return deadline in respect of a taxpayer's foreign affiliates will be accelerated from 15 months after year-end to 12 months after year-end for taxation years of a taxpayer that begins in 2020, and to 10 months after year-end for taxation years of a taxpayer that begin after 2020.
Disclaimer: The blog does not represent taxation or legal advice and that independent advice should always be sought in respect of such matters etc.