New year brings changes to federal tax and payroll contributions

TheStar.com
January 4, 2019
Marco Vigliotti

From employment insurance to small business taxes, 2019 is already changing the way Canadians manage their pocketbooks.

As in many years past, Jan. 1 heralded the introduction of several federal tax and benefit changes, including hikes to premiums paid to the Canada Pension Plan.

Jan.1 heralded the introduction of several federal tax and benefit changes. Canadians are now paying more into the Canada Pension Plan and employment insurance.

But none of these changes may be as significant as the federal carbon tax set to go into effect later this year.

In jurisdictions without their own carbon-pricing systems, the federal government will begin charging a $20 tax per tonne of greenhouse-gas emissions in April 2019. This will increase by $10 per year until hitting $50 a tonne in 2022. The four provinces that have refused to put in place carbon-pricing mechanisms, and thus will be subject to the federal “backstop,” are Ontario, Manitoba, New Brunswick and Saskatchewan.

To help offset the cost of the new tax, Ottawa is promising more than $2 billion in rebates, with federal officials saying more than 70 per cent of affected households will end up taking more than they pay in carbon fees, reports The Canadian Press.

According to federal estimates, a family of four in Saskatchewan will receive $609 in rebates this year and $1,459 in 2022, while in Manitoba, the rebates will be $339 in 2019 and $801 in four years’ time. In Ontario, the rebates will total $307 in 2019 and $718 in 2022, while for New Brunswick families, it will work out to $259 this year and $607 in 2022.

Under draft regulations released by the federal government late last year, large industrial emitters will be subject to different rules.

As reported by iPolitics, Ottawa’s new output-based pricing system (OBPS) for carbon emissions from large industrial facilities will operate much like a traditional cap-and-trade program, with operators required to secure credits to pollute, but eligible to sell unused ones for a profit.

Most of the 38 industrial activities covered by the draft regulations face a standard test of 80 per cent of the sector’s weighted-average emissions intensity. This means most large polluters only have to pay the carbon fee on 20 per cent of their emissions.

However, Environment Canada announced in December it had increased the threshold for cement and lime producers to 95 per cent, and 90 per cent for petrochemical manufacturers, because the sectors face higher risks of “competitiveness impacts.” The ministry also warned that the sectors stand a greater risk of companies relocating to countries with less stringent climate policies.

While the new carbon tax won’t debut until the spring, changes to the premiums Canadians pay for the national pension plan and employment insurance have already gone into effect.

Starting Jan. 1, employee contributions to the Canada Pension Plan on earnings between $3,500 and $57,400 have increased to 5.1 per cent from 4.95. It’s the first of five gradual increases that will eventual bring the contribution rate up to 5.95 per cent in 2023.

Dubbed the CPP enhancement, the increased contribution rate, envisioned by the governing Liberals and agreed to by Ottawa and the provinces in 2016, will allow the pension plan to supplement one-third of Canadians’ average work earnings during retirement. Under the previous contribution regime, the CPP would only replace one quarter of average employment earnings.

The Liberals justified the need for the enhancement with figures showing Canadians weren’t saving enough for retirement.

The increase in CPP premiums will be partly offset by falling EI contributions, facilitated by an improving national economy.

Finance Minister Bill Morneau and Families, Children and Social Development Minister Jean-Yves Duclos announced in September that contributions to EI will fall four cents to $1.62 per $100 of insurance earnings in 2019. The government says this is the lowest EI premium rate since 1980, crediting the reduction to a “strong and growing economy” that has driven unemployment down to historic lows.

The EI rate is determined by the Canada Employment Insurance Commission, based on a “seven-year break-even mechanism” with the goal of a $0 balance in the EI operational account.

Finally, the small business tax rate dropped one percentage point at the start of 2019 to 9 per cent. The Canadian Federation of Independent Businesses (CFIB) says the tax cut will result in annual savings of $7,500.

However, Ottawa is increasing the tax bill for small businesses that derive more than $50,000 from passive investments such as stocks, bonds and real estate. For every dollar of investment income above that threshold, the small-business deduction limit will fall by $5. That means small businesses recording $150,000 in annual passive investment income will now have the regular 15 per cent corporate tax rate slapped on all business income, according to the CFIB.