Fall Economic Statement - Tax Update

Fall Economic Statement - Tax Update

Laura Simmonds, Senior Tax Manager, MRSB Group

The Fall Economic Statement was released by the Department of Finance on November 21, 2018. Canada’s economy continues to remain strong and growing. However, the country has faced several years of uncertainty, including new tax changes in the United States that may impact the Canadian economy. In response to this, along with other factors, the Government has proposed a number of new tax incentives to support and increase business investment in Canada.

Under the current tax rules, the cost of a capital asset, such as building, machinery and equipment, is deducted as capital cost allowance (CCA) over a period of time that corresponds to the useful life of the asset. The new tax incentives will allow Canadian businesses to write off a larger amount of the cost of a newly acquired asset in the year an investment is made.  By increasing the deduction available in the first year, the intention is to accelerate tax savings and allow funds to be re-invested in the business for growth.

The tax incentives discussed below will apply to qualifying assets acquired after November 20, 2018. The accelerated tax deductions will be gradually phased out beginning in 2024 and will no longer be available for investments put in use after 2027.

Manufacturing and Processing Equipment

The new rules allow for an immediate write off of the cost of machinery and equipment used for the manufacturing and processing of goods in Canada.  This effectively increases the CCA rate for Class 53 to 100%.  

Specified Clean Energy Equipment

The new rules will also allow for an immediate write off of the cost of specified clean energy equipment. This effectively increases the CCA rate for Class 43.1 and 43.2 to 100%.

Accelerated Investment Incentive

This incentive applies to both tangible and intangible capital assets, with the exception of those assets eligible for a full write off as discussed above.  Under the Accelerated Investment Incentive, a business is able to claim up to three times the normal deduction for CCA in the year a capital asset is put into use.

The half-year rule, which reduces the amount of CCA otherwise available by half in the year of acquisition, does not apply under any of the three incentives. Consistent with the existing rules, the accelerated CCA claimed under the incentives will be pro-rated for short taxation years.

The chart below outlines the impact of the proposed measures for the CCA deduction in the first year on select assets.

 

Normal

Proposed Measures

Immediate expensing

  • Manufacturing and processing equipment
  • Clean energy equipment

 

 

25%

25%

 

100%

100%

Accelerated Investment Incentive

  • Computer software
  • Computers
  • Motor vehicles
  • Office equipment
  • Buildings used in manufacturing and processing

 

50%

27.50%

15%

10%

5%

 

100%

82.50%

45%

30%

15%

 

 

It is important to note that the total CCA available over the life of an asset does not change with the new tax incentives.  The accelerated deduction in the first year will be offset by smaller deductions available in future years. Capital assets acquired in a non-arm’s length transaction or on a tax-deferred rollover basis are not eligible for the tax incentives.

The restrictions under the Income Tax Act that limit the amount of CCA that may be deducted in a year, related to limited partnerships, specified leasing properties and rental properties, continue to apply.

Other Tax Measures

  • The Mineral Exploration Tax Credit, which is scheduled to expire March 31, 2019 will be extended to March 31, 2024. 
  • The Government will introduce a new category of qualified donee which will include eligible non-profit journalism organizations. This will allow the organizations to receive funding from registered charities and to issue official donation receipts, allowing donors to benefit from the charitable donation tax credit.
  • A new refundable tax credit will be introduced for qualifying news organizations to be effective January 1, 2019. The tax credit will support labour costs associated with the production of news content and will generally be available to both non-profit and for-profit news organizations.
  • A new temporary, non-refundable 15% tax credit will be introduced for qualifying subscribers of eligible digital news media. Additional details to be provided in Budget 2019.

Changes to your benefit and credit payment amounts

The following has been made available by the Canada Revenue Agency:

Each summer, following the tax filing season, the Canada Revenue Agency (CRA) uses information from an individual’s income tax and benefit return, along with the return of their spouse or common-law partner, to calculate benefit and credit payments for the upcoming year. Starting in July, eligible benefit and credit recipients may notice changes to their payment amounts.

For example, those who receive the Canada child benefit (CCB), including any related provincial or territorial payments, may notice changes starting with the payment issued July 20, 2018. The payment amount issued on this date will be their monthly CCB payment for the year, until June 2019, unless their situation changes.

Other benefit and credit payments that depend on information submitted in a return and follow a similar cycle include the GST/HST credit (including any related provincial credits) and the Guaranteed Income Supplement (GIS) (administered by Service Canada).

Do your taxes to receive benefit and credit payments

All Canadians need to file their taxes and also keep their personal information such as their address and marital status up to date with the CRA to make sure their benefit and credit payments are not interrupted. Due to changes to individuals’ family income or personal information (such as, changes in number of dependents, marital status, or province/territory of residence), some individuals who were entitled to benefits the previous year may no longer qualify to receive them or may receive a different amount.

For those who have not yet filed a return, the CRA has helpful information and services available to make doing your taxes fast and easy. Also, individuals should consider filing their returns for any outstanding years as they may be entitled to retroactive payments of the CCB, the Canada child tax benefit, national child benefit supplement, the universal child care benefit, and related provincial and territorial payments, if they were eligible in those years.

Contact us if you have questions about changes to your benefits or credits

Have your benefit and credit payments stopped, or have you noticed a change to your payment amounts and you’re not sure why? For questions about the CCB or the GST/HST credit, call the CRA’s Benefits Enquiries phone line. Anyone with questions about GIS payments should contact Service Canada.

Interest rates for the third calendar quarter

The Canada Revenue Agency (CRA) announced today the prescribed annual interest rates that will apply to any amounts owed to the CRA and to any amounts owed by the CRA to individuals and corporations. These rates will be in effect from July 1, 2018, to September 30, 2018.

Income tax

  • The interest rate charged on overdue taxes, Canada Pension Plan contributions, and employment insurance premiums will be 6%.
  • The interest rate to be paid on corporate taxpayer overpayments will be 2%.
  • The interest rate to be paid on non-corporate taxpayer overpayments will be 4%.
  • The interest rate used to calculate taxable benefits for employees and shareholders from interest free and low-interest loans will be 2%.
  • The interest rate for corporate taxpayers’ pertinent loans or indebtedness will be 5.16%.

Other taxes, duties, or charges

The interest rates on overdue and overpaid remittances will be as follows:

Tax, duty, or other charges Overdue remittances Overpaid remittances – Corporate taxpayers Overpaid remittances – Non- corporate taxpayers
Goods and services tax (GST) 6% 2% 4%
Harmonized sales tax (HST) 6% 2% 4%
Air travellers security charge 6% 2% 4%
Excise tax (non-GST/HST) 6% 2% 4%
Excise duty except brewer licensees (amounts due after June 30, 2003) 6% 2% 4%
Excise duty except brewer licensees (amounts due before July 1, 2003) 4% N/A N/A
Excise duty (brewer licensees) 4% N/A N/A
Softwood lumber products export charge 6% 2% 4%

The overdue remittance rate is the rate of interest the taxpayer must pay on amounts due to the CRA.

The overdue remittance rate is the rate of interest the CRA must pay on amounts due to the taxpayer.

Quick facts

  • Prescribed annual interest rates are calculated quarterly according to the laws that apply.
  • For information on the prescribed interest rates for other calendar quarters, go to Prescribed interest rates.

This information was made available by the Canada Revenue Agency. 

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