Tax Tips and Planning
The rules are always changing. Here are some tax tips that will help save you money.
2020 Tax Information and Reminders
2020 TFSA limit is $6,000
The Tax-Free Savings Account (TFSA) limit was $6,000 for 2019 and $5,500 for 2018, 2017 and 2016, $10,000 for 2015, $5,500 for 2014 and 2013. For 2009 to 2012, the limit was $5,000. The total room available in 2020 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009 is $69,500.
Contributions can be made by Canadian residents aged 18 or over. Any unused contribution room can be carried forward. There is no lifetime limit to the amount of the contributions. If a person has contribution room, but no funds to contribute, he or she may contribute funds given to them by their spouse or common-law partner, with no attribution of income to the spouse or common-law partner. Note that a withdrawal in any year does not increase the TFSA room until the following calendar year. If you are thinking of making a withdrawal close to year end, make sure it is done by December 31 so you can have the withdrawal amount added back to the TFSA room sooner.
2020 RRSP Limit
The RRSP contribution limit is $27,230 in 2020 ($26,500 in 2019). The limit will increase to $27,830 in 2021. If you or your employer do not contribute to a pension plan, your 2020 “earned income” for RRSP purposes must be at least $154,611 to create RRSP contribution room of $27,830 in 2021. Please see the news release.
2020 Employment Insurance Rates
Employment Insurance (EI) rates for 2020 have changed to 1.58% (vs 1.62% for 2019) of earnings for employees. The maximum annual premium decreased to $856.36 (from $860.22 in 2019). The rate for employers is 1.4 times the employee rate or 2.212%. The maximum insurable earnings for 2020 increases to $54,200 from $53,100 in 2019.
2020 Canada Pension Plan Rates
The maximum pensionable earnings under the Canada Pension Plan (CPP) for 2020 will be $58,700 – up from $57,400 in 2019. Contributors who earn more than $58,700 in 2020 are not required or permitted to make additional contributions to the CPP.
The basic exemption amount for 2020 remains at $3,500. Individuals who earn less than that amount do not need to contribute to the CPP.
The employee and employer contribution rates for 2020 have increased to 5.25% from 5.10% in 2019, and the self-employed contribution rate will increase to 10.5%.
The maximum employer and employee contribution to the plan for 2020 will be $2,898.00 and the maximum self-employed contribution will be $5,796.00. The maximums in 2019 were $2,748.90 and $5,497.80.
Canada Pension Plan Changes for Persons Between Ages 60 and 70
Beginning in 2012, employers must withhold and remit CPP on wages paid to employees between ages 60 and 70, even if the employee is collecting CPP benefits. If the employee is between 65 and 70, he or she may file an election to opt out of paying CPP. These rules also apply to self-employed individuals. In order to avoid paying CPP, the election must be filed with CRA to take effect on the first of the following month. There are several other changes related to CPP benefits. Please contact us for information.
Employer Health Tax
Effective January 1, 2019, the EHT exemption has increased from $450,000 to $490,000. More information on Employer Health Tax: https://www.fin.gov.on.ca/en/tax/eht/index.html
Accelerated Capital Cost Allowance (CCA)
Accelerated CCA is available on additions from November 21, 2018 to December 31, 2027. Prior to the rule change, the “half-year rule” allowed half a year of capital cost allowance in the year of acquisition. Now, for most assets, the usual half year of CCA available in the year of acquisition will be tripled for acquisitions to December 31, 2023. For example, a Class 10 vehicle which is normally subject to a 15% CCA claim in the first year would now be allowed a 45% CCA claim. For acquisitions in calendar years 2024 to 2027, the usual half year of CCA will effectively be doubled rather than tripled. After the acquisition year, CCA will return to the normal rate on the remaining pool in the CCA class.
Tuition and Textbook Credits
For 2020 federal tax purposes, the tuition credit is available; however, the textbook credit is no longer available. For 2020 Ontario tax purposes, the tuition and textbook credits are no longer available.
Climate Action Incentive Payment
The climate action incentive (CAI) is a refundable credit which consists of a basic amount and a supplement for residents of small and rural communities. The basic amount is $224 and the spouse or common-law partner amount is $112 and $56 for each qualified dependant. More information on Climate Action Incentives:
Capital Gains Exemption
The lifetime capital gains exemption for capital gains on qualified small business corporation shares has increased to $883,384 in 2020 from $866,912 in 2019. The lifetime capital gains exemption for capital gains on qualified farm property is $1,000,000 for 2020 and 2019.
Prescribed Interest Rates
The prescribed rates for the first quarter of 2020 is as follows:
- 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%.
For more information please see CRA’s website on prescribed interest rates
What are the Automobile Limits?
|Limit on cost of vehicle for capital cost allowance purposes||$30,000.00*||$30,000.00*|
|Limit on deductible monthly lease expense||$800.00*||$800.00*|
|Maximum allowable monthly interest deductions in respect of amounts borrowed to purchase an automobile -based on year of purchase||$300.00||$300.00|
|Deduction limit for tax-exempt allowances paid by employers to employees
-on first 5,000 km
-for each additional km
|Benefit from employer-paid automobile operating expenses based on personal kilometers driven
-rate for employees of automobile dealers
Portion of above in respect of GST/HST which must be remitted by employer who is a GST/HST registrant in Ontario
* plus GST/HST
See the Department of Finance News Release.
Year End Tax Planning
- Consider paying reasonable salaries to family members before year end. Reasonable salaries can be deducted by you and taxable to them at possibly lower rates.
- Businesses should purchase capital assets before year end. Assets purchased and in use before the business year end are eligible for one half of the usual capital cost allowance rate.
- Owner-managers should consider their salary/dividend mix from their corporation. If you have drawn funds from your corporation throughout the year, you should determine whether these amounts should be characterized as salary or dividends before the year end. Ritchie Shortt & Tully LLP can help you with this decision.
- Consider gifting funds or making interest-free loans to your spouse or an adult child to contribute to the Tax Free Savings Account.
- Consider selling investments with accrued losses before the end of the year to offset any gains you have had during the year. Capital losses in excess of gains can be carried back three years and forward indefinitely.
- Contribute to your RRSP by March 2, 2020 to make the contribution deductible for 2019. Also remember to make your required Home Buyer’s repayment by March 2, 2020.
- Charitable donations, medical expenses, political donations, child care expenses, investment counsel fees and professional dues should be paid by December 31 to be creditable or deductible in the previous calendar year.
- Contribute to Registered Education Savings Plans for your children by December 31. Rather than an annual RESP contribution limit there is now a lifetime contribution limit of $50,000. When you contribute money to any RESP, the federal government will deposit an additional amount – the Canada Education Savings Grant (CESG) – equal to 20% of your contribution up to certain limits. The maximum CESG each year is $500 (20% x $2,500 contribution). The lifetime CESG limit is $7,200.
- Direct Deposit – Canada Revenue Agency is switching to direct deposit for all payments that it issues. We urge you to set up direct deposit at this time. This can be done online through “My Account” (if you are registered), by phone (call 1-800-959-8281), by completing and mailing the Direct Deposit Enrolment Form, or by providing us with a void cheque (we will submit this information to CRA when we electronically file your return).
CRA now has a GST Registry on their website. The GST/HST Registry lets you validate the GST/HST number of a business, which helps to ensure that claims submitted for input tax credits only include GST/HST charged by suppliers who are registered for GST/HST. To get information to validate the GST/HST number of a business, you have to enter in the space provided the business name, the GST/HST number, and the date of the transaction in question. Access the registry.
Harmonized Sales Tax for Ontario
On March 26, 2009, the Ontario government announced in its annual budget that Ontario will eliminate its existing provincial sales tax (PST) and introduce a harmonized sales tax (HST) with the Federal GST. This will take effect on July 1, 2010. The HST rate in Ontario will be 13% of which 5% will represent the federal part and 8% will represent the provincial part.
On October 14, 2009, the Ontario Ministry of Finance released Information Notice No. 3, General Transitional Rules for Ontario HST. Further details of how the HST will be implemented will be released in the coming months. The complete policy and administrative details will be released by the end of March 2010.
Unlike the GST, many Ontario businesses pay PST on business expenses and assets with no ability to recover the tax. This embedded PST forms part of the costs of the business. Under a harmonized sales tax system, input tax credits (ITCs) will be available to recover the provincial component of the tax, which should result in lower costs – those savings can be passed on to consumers through lower prices.
To compensate small businesses (generally, annual taxable revenue of less than $2 million) for the increased administrative burden of the change to HST, a credit will be allowed for the first reporting period after harmonization.
|Total taxable revenues in first full fiscal quarter commencing after June 30, 2010||Amount of transition credit|
|Up to and including $15,000||$300|
|Over $15,000 and up to and including $50,000||2% of taxable revenue for the quarter|
|Over $50,000 and up to and including $500,000||$1,000|
To compensate individuals, a sales-tax transition credit will be paid to individuals and families in three approximately equal instalments, in June and December 2010 and June 2011, totaling a maximum of $300 for single individuals and $1,000 for single parents and families. The credits are reduced by 5% of income over a threshold of $80,000 per individual and $160,000 per family or single parent. The credits phase out for an individual at an income level of $82,000 and for single parents and families at an income level of $166,700. You must file your 2009 and 2010 income tax returns to qualify for the 2010 and 2011 payments, respectively.
Phase-in of ITCs for Larger Businesses
Large businesses with annual taxable sales in excess of $10 million, and financial institutions, will be unable to claim ITCs for the Ontario portion of the HST for the first 5 years of the new system. Full ITCs on these purchases will be phased in, in equal amounts, over a three-year period. The restricted groups of expenses are as follows:
- Energy (except for energy used for farming or the production of goods for sale);
- Telecommunication services other than internet access or toll-free numbers;
- Road vehicles weighing less than 3,000 kg (and parts and certain services) and fuel to power those vehicles and
- Food, beverages and entertainment.
Preparing for HST
Businesses will need to think about certain items as harmonization approaches:
Conversion – invoices, sales receipts, purchase orders, expense reports, identification numbers, billing cycles, treatment of refunds over transition period, collecting HST from customers that were previously PST exempt, maintain information on percentage completion before and after implementation date
Budgeting and cash flow – ability to recover HST, collection and remittance of HST on a broader range of services and goods, payment of HST on business assets and expenses, implementation costs, importance of quick collection of receivables. Small businesses may want to purchase items after June 30, 2010 while individuals and the MUSH (Municipalities, Universities and Colleges, School Boards, Hospitals) and Charities and Qualifying Non-Profit Organizations sectors may want to purchase goods and services before July 1, 2010. Businesses may want to consider filing more frequently – note that an election must be filed before your fiscal year.
Contractual obligations, leasing and service agreements – ensure the implications are taken into account with contracts straddling the July 1, 2010 implementation date
HST will tax a much broader range of goods and services. Businesses must also ensure that their systems will be equipped to distinguish between items which are fully taxable from those that are subject to the new point-of-sale rebate for the provincial portion of the HST for certain items:
- Print newspapers
- Qualifying prepared food and beverages ≤ $4
- Children’s clothing – not costumes, sports protective clothing
- Children’s footwear – not skates, cleats, ski boots
- Children’s car seats and booster seats
- Feminine hygiene products
Public Service Bodies
Many supplies made by entities in the MUSH and Charities and Qualifying Non-Profit Organization sectors are exempt from GST/HST – no tax is collected on these supplies. Consequently, these entities are unable to claim ITCs on most of their purchases. To compensate these entities for the difference in tax content, these entities will be entitled to rebates of a portion of the Ontario portion of the HST. The rate for municipalities, universities and colleges is 78%, for school boards is 93%, for hospitals is 87% and for charities and qualifying non-profit organizations is 82%.
Construction and Real Estate Development
Currently, new housing is only subject to 5% GST with a GST rebate available of 36% of the tax paid on the first $350,000 of the purchase price (this is phased out for homes priced between $350,000 and $450,000). Under harmonization, new homes will be subject to the 13% HST. To ease the burden of the new tax, Ontario will provide a new housing rebate equal to 75% of the provincial portion of the HST up to a maximum of $24,000 for new homes purchased as primary residences across all price ranges. The transitional rules are quite complex and vary depending on the type of property and the date that the agreement to rent or purchase was entered into.
Transition – Key Dates
July 1, 2010 – implementation of the HST in Ontario
May 1, 2010 – HST has to be collected on amounts that are paid or become payable on or after May 1, 2010 for goods or services provided on or after July 1, 2010
October 14, 2009 – date of Ontario’s Notice regarding transitional rules. Certain businesses and public service bodies may be required to self-assess the Ontario component of the HST on amounts payable after October 14, 2009 and before May 2010 for goods or services provided on or after July 1, 2010
October 31, 2010 – date on which any outstanding PST becomes payable under the transitional rules to ensure an efficient wind-down of the PST. Watch out for the impact of this on returns and exchanges.
Sales – The HST will generally apply to any consideration that becomes due or is paid without having become due, on or after May 1, 2010 for a supply by way of sale of tangible personal property (i.e., goods) to the extent that the consideration is for TPP that is delivered and for which ownership is transferred, to the recipient of the supply on or after July 1, 2010. The HST would not apply to a supply by way of sale of TPP if the TPP is delivered orownership of the TPP is transferred to the recipient of the supply before July 2010 regardless of when the consideration for the supply becomes due or is paid without having become due.
A customer orders and pays for a refrigerator on June 15, 2010 and it is delivered in July 2010.
GST is payable at 5% on June 15, 2010
PST is not payable
The Ontario portion of the HST is payable at 8% on July 1, 2010.
A customer orders and pays for a refrigerator on April 30, 2010 and it is delivered in July 2010.
GST is payable at 5% on April 30, 2010
PST is payable at 8% on April 30, 2010
The Ontario portion of the HST is not payable.
Services – To determine whether GST or HST applies to services performed during the period that includes July 1, 2010, suppliers must consider:
- When the service is performed;
- When an amount for the service becomes due; and
- Whether an amount is paid without having become due.
I provide an accounting service from January 2010 to June 2010, and issue an invoice for my service in August 2010. The client pays me after receiving the invoice.
GST is payable at 5%
Since all of the service is performed before July 2010, the OHST does not apply to the consideration for this service.
I provide a decorating service in June and July 2010. 60% of the service is performed in June 2010. I issue an invoice for my service in August 2010. The client pays me after receiving the invoice.
HST applies to the portion of the consideration that relates to the 40% of the service that is performed on or after July 1, 2010.
The OHST does not apply to the portion of the consideration that relates to the 60% of the service that is performed before July 2010.