TAXATION OF MUNICIPAL ALLOWANCES CHANGING IN 2019

Another change announced in prior years will become effective in 2019.

As of January 1, 2019, non-accountable allowances paid to elected members of legislative assemblies, certain municipal officers, and certain other individuals will be fully included in income. Allowances are considered to be non-accountable if the employee did not have to submit receipts in order to receive the allowance.

Currently, if the allowance is less than 1/2 of the income received from the above individual’s salary and other remuneration, the allowance is not included in income. As of January 1, the full amount of the allowance will be included in Box 14, and will be subject to income tax and Canada Pension Plan deductions. However, because amounts paid to elected or appointed officials are not subject to Employment Insurance, no Employment Insurance premiums will be deducted.

If eligible, the expenses can still qualify as employment expenses and be deducted on the personal income tax return. The taxpayer will have to meet the same requirements as other employees in order to qualify for the deduction.

CANADA PENSION PLAN MODIFICATIONS FOR 2019

Changes to the Canada Pension Plan, which were announced in 2016, will come into effect on January 1, 2019. At that time, pension benefits and premiums will gradually begin escalating.

Currently, premiums are deducted at a rate of 4.95% for employees, and 9.90% for the self-employed. As of January 1st, the rate will increase to 5.10% for employees, and 10.20% for the self-employed. Over a five year period, these  rates will gradually climb, so that by 2023, employee premiums will be 5.95%, and self-employed premiums will be 11.90%.

 

In addition to premium increases, the Year’s Maximum Pensionable Earnings (YMPE) will also be increasing. In 2019. The YMPE will be $57,400, meaning that the maximum premiums that could be paid by an employee in 2019 will be $2,928, and the maximum premiums that could be payable by a self employed individual will be $5,855.

Eventually, the escalations in premiums will result in expansions in the amount of benefits employees will receive when they retire.

Currently, the maximum pension available is 1/4 of YMPE, which results in a pension of approximately $13,600 in 2018. This will gradually rise to 1/3 of YMPE, although the change will not be fully implemented for 40 years, when all of an individual’s premiums will have been paid using the higher rates.

Because of the growth in Canada Pension Plan premiums, the federal government has introduced changes to the Working Income Tax Benefit. These changes will help to offset the additional premiums for low income individuals. They have also changed the name of the program to the Canada Workers Benefit.

BC SPECULATION AND VACANCY TAX INTRODUCED

The provincial government of British Columbia has introduced legislation which will tax those individuals who own multiple homes in certain areas of British Columbia.

Originally titled as the “BC Speculation Tax”, it has been renamed as the “BC Speculation and Vacancy Tax”.

It will apply to those who own multiple properties in Metro Vancouver, the Capital Regional District (excluding the Gulf Islands and the Strait of Juan de Fuca), Kelowna, West Kelowna, Nanaimo, Lantzville, Abbotsford, Chilliwack and Mission.

The tax rate on homes will vary depending on the taxation residence of the homeowner. In 2018, both Canadian residents and non-residents will pay a tax of .5% of the assessed value per home per year.

In 2019, the rate for Canadian residents will remain at .5%, whereas the rate for non-residents will increase to 2%.

It is estimated that approximately 2/3 of the people who will be paying the tax will be from British Columbia.

Homeowners can avoid the tax if they rent out the property for at least six months in the year. There is also a credit available for residents of British Columbia which would apply to the first $400,000 of assessed value in the home, which will reduce the tax payable by $2,000 per year.

Municipalities had argued for the option to decide if they wanted the speculation tax to apply in their community. The provincial government denied this request.

Developers working on housing projects, as well as individuals suffering medical emergencies, moving to a residential care facility, or suffering a marriage breakup are also exempt from the new tax.

As well, if a spouse is required to have a second home which is closer to their place of employment by 100km, they will also qualify for the exemption. Several other minor exemptions are also available.

Homeowners in the designated areas will receive forms in the mail in February 2019, at which time they will have to declare whether the property is their primary residence. If it is rented out, they will have to declare the length of time it was rented out in the year.

Provincial Education Credit Eliminated… (Again)

There has been another change to the education tax credit for students in British Columbia. As discussed in the Autumn  newsletter, the previous  provincial government had planned to eliminate the provincial education  tax credit. When the  new government came to power, they cancelled the plans for eliminating this credit. However, in the provincial budget  this spring, it was announced once again that the credit would be eliminated, as of January 1, 2019.

Short Term Accommodations Taxed

Effective October 1, 2018, new rules will be in place for short term accommodation providers in British Columbia.

As of that date, unless an owner is listing their property on an online accommodation platform such as Air BNB, or they have an exempt property, they must be registered for Provincial Sales Tax (PST), and if applicable, Municipal Regional and District Tax (MRDT).

The rate of tax for PST is 8%, and the MRDT can be up to 3%. If the provider is registered on an online accommodation platform, the platform will start collecting the taxes for them.

In the past, there were exemptions available if a provider had less than 4 units of housing available. This exemption will be removed when the new rules come into place.

It will be replaced by an exemption from registration for providers who have revenue of less than $2,500 in the last 12 months, can reasonably expect to have revenue of less than $2,500 in the next 12 months, and are not registered on an online accommodation platform.

Long term accommodations are still exempt under the new rules. However, there has been a reduction in the number of days needed to qualify for this exemption.

Previously a unit had to be rented for a month to be considered long term accommodation. Under the new guidelines, the rental property only has to be rented for 27 days to qualify.

Online classified listings and listing services that do not collect tax on behalf of the owner are not online accommodation platforms for the purposes of the new regulations.

Providers may also need to charge Goods and Services Tax on their accommodations. There have been no changes to these regulations.