CRA INTEREST RATES RISING

The interest rate charged by the Canada Revenue Agency (CRA) on late payments was raised in 2018 for the first time since April, 2009.

The rate was reduced to 5% in the early days of the financial crisis, and has remained there for 9 years. Effective April, 2018, the rate climbed to 6%.

Every three months the rate will be evaluated to determine if it will be changed. The next potential change to the interest rate would be April, 2019.

The determination of the rate is based on the average interest rate on Government of Canada 90-day Treasury Bills for the first month in the previous quarter.

At the end of October, the rate on those Treasury bills was 1.73%, up from 1.19% in January, 2018. CRA starts with that rate, rounds it down, and then adds 5% to it. The net result is the current interest rate of 6%.

If the average rate increases to over 2.00% in January, 2019, the interest rate charged by the CRA will rise to 7% starting in April, 2019.

Current interest rates on tax refunds have also increased. Corporate taxpayers will receive refund interest at 2%, whereas non-corporate taxpayers will receive 4% interest.

DID YOU KNOW…

A recent report by the Auditor General found that there are  several issues with Canada Revenue Agency
call centres. There are nine such call centres across Canada. Of the 53.5 million calls made to call centres,
29 million did not go through, and it took callers on average 3 to 4 attempts to get through. Of greater
concern is that 30% of the answers given by these call centres were wrong.

EMPLOYMENT INSURANCE RATES REDUCED

The 2019 Employment Insurance (EI) Premium rate will be going down in 2018. The rate will be decreasing from $1.66 to $1.62 for every $100 of insurable earnings. This will be the lowest EI premium rate since 1980. The decrease in the effective rate for employers will be slightly greater, as employers pay 1.4 times the amounts paid by employees.

Nonetheless, total premium deductions will actually be increasing in the coming year, due to an increase in Maximum Insurable Earnings, from $51,700 in 2018 to $53,100 in 2019.

As a result, the maximum employee deduction will be increasing slightly to $860, and the maximum employer contribution will be rising to $1,204.

If an employee has net income over $66,375 in 2019, and they have received EI premiums for more that one week in the prior 10 years, they will have to pay back a portion of their EI premiums. This clawback rate will be 30% of the     amount that their net income exceeds $66,375.

CORPORATE TAX RATE DROPPING IN 2019

Corporate tax rates will continue to decrease in 2019 for small businesses.

The small business tax rate applies on the first $500,000 of active income that is earned by a qualifying small business corporation. The tax rate on this income in British Columbia will be reduced to 11%. This drop will represent the final annual decrease in the plan that was introduced by the federal government in 2016. For active business income over $500,000, the tax rate will remain unchanged at 27%.

To offset the decrease in corporate tax rates, the CRA has increased the personal tax rate on dividends paid to shareholders on the qualifying earnings of these corporations. As a result, the net after tax cash of a shareholder has dropped across all income levels on the receipt of dividends. Shareholders in many cases will now pay less cumulative taxes on wages as compared to dividends.

There have been discussions concerning the Canadian response to the drop in corporate income tax rates in the United States. Their federal corporate tax rate dropped from 35% to 21%. When combined with corporate tax rates charged by individual states, the average tax rate for companies in the United States is just under 26%.

Additional drops in corporate tax appear unlikely in Canada. However, the federal government may increase the rates with which capital purchases can be written off, which formed part of the tax cuts in the United States.

DID YOU KNOW…

If a taxpayer is a resident of Canada, and they receive United States Social Security benefits, they must report these benefits on their personal tax return in Canada. As a result of the tax treaty between Canada and the United States, a taxpayer only has to pay tax on 85% of the benefits they receive. If they started collecting those benefits prior to 1996, they only have to pay tax on 50% of the benefits.