What's new for 2019 personal income taxes?
Personal tax rates
The combined federal and provincial (SK) tax rate remains the same for 2019; the highest marginal tax rate in Saskatchewan is 47.5%. The brackets are indexed for inflation each year.
Working Income Tax Benefit
Not only will the Working Income Tax Benefit (WITB) be renamed to the Canada Workers Benefit but the potential benefit will be both enhanced and indexed for inflation thereafter. The maximum amounts receivable for eligible individuals and families will be $1,355 and $2,335, respectively. To qualify for this benefit, you have to be 19 years of age or older and earn between $12,820 and $24,112 if you are single, or earn between $17,025 and $36,484 (including spouse’s income) if you are married or living common-law. This benefit is not available if you are a full-time student unless you have an eligible dependant.
Accelerated Investment Incentive
For self-employed individuals, the accelerated investment incentive (AII) provides an enhanced first-year capital cost allowance (CCA) deduction for certain eligible property. First of all, the half-year rule has been suspended so you don’t have to cut your first-year claim in half. In addition, the first year of CCA has been bumped up by 50%. After the acquisition year, normal CCA rates will resume.
So how does this work in practice? Let’s say you purchase a new or used tractor for $100,000. Tractors and other self-propelled equipment are in Class 10 and eligible for 30% CCA. If you purchased the tractor before November 20, 2018, the CCA in the first year is 15% or $15,000. This is half of the 30% CCA in the first year of purchase.
If the tractor is purchased after November 20, 2018, the half-year rule is suspended, plus the amount is bumped up by a factor of 1.5 times. Rather than CCA of 15%, you can deduct 45% which is $45,000.
How does this affect your tax bill? If you’re running an incorporated farm with a federal tax rate of 12%, the $45,000 CCA reduces your tax bill by $5,400. The same tractor purchased before November 20, 2018 would generate a reduction in taxes of only $1,800.
This is a federal incentive to purchase equipment and stimulate the economy. However, remember that when you’re allowed to claim more CCA in year one, it reduces how much CCA is left for subsequent years. The total amount of deduction hasn’t been increased. You just get to claim deductions sooner.
Canada Training Credit
Proposed in Budget 2019, the Canada Training Credit will allow eligible workers to accumulate $250 per year in a notional account to be used to offset the future cost of tuition or fees for work-related training. The maximum credit available in a year will be limited to the lesser of half the eligible tuition fees paid in the year and the individual’s notional account balance accumulated in previous years. Since the first $250 will be added to a notional account in 2019, this refundable tax credit will first be available in the 2020 taxation year.
Don't get scammed!
There are a variety of scams being committed to the general public from fraudsters claiming to be from the CRA. Be aware of this and don’t be fooled. Remember that CRA will neither text nor send unsolicited email messages. They will not request personal information such as credit card, bank account, or passport numbers. They cannot accept payment via e-transfer, prepaid credit cards, or gift cards. If you receive any suspicious phone calls or voicemails, you can always phone the main CRA enquiries telephone line to verify the legitimacy of those calls.
TFSA or RRSP contributions
Should you put money in a TFSA account or an RRSP account? This is the million-dollar question that usually is answered as “it depends”. If you will be in the same tax bracket when you cash in your TFSA or RRSP as when you make the contribution, both of these will result in the same amount net of tax, all things being equal (i.e. future tax rates). As a rule of thumb…if you expect that you will be in a lower tax bracket when you take it out, buy an RRSP. If you expect you will be in the same or higher tax bracket buy a TFSA – it will mean less taxable income when you retire which may allow you to qualify for more tax benefits at that time (Sask Seniors Drug Plan, age credit, less OAS clawback, etc).
Interest as a tax deduction
Interest expense is only deductible if it is paid on money borrowed to earn taxable income. For example, if you borrow money to invest in a rental property, that interest is deductible. If you borrow money to pay for your TFSA contribution, it is not because the interest earned in your TFSA is not taxable income. It is important to link the borrowed money to the specific eligible use. You are allowed to restructure your borrowings to meet that objective. For example, let’s assume you own shares in X Corp of $5,000 and you have a balance of $5,000 on a line of credit from when you renovated your house. As it stands, the interest on the line of credit is not deductible because the money was used for a non-taxable purpose. You could sell the shares in X Corp and use the proceeds to pay off the line of credit, then borrow $5,000 to purchase shares in X Corp back again. You still end up with $5,000 of shares and $5,000 of debt, but now the interest is deductible because you can prove the direct use of the borrowed money.
If you have any questions about any of the items listed above, please contact us at (306) 653-5100.