On March 19, 2019, the federal government tabled its election budget, the 2019-20 budget. The budget expects a deficit of $14.9 billion for fiscal 2018-2019 and forecasts deficits of $19.8 billion for 2019-2020 and $19.7 billion for fiscal 2020-2021. The budget does not include any personal or corporate tax rate changes; however, the budget does include measures of interest to employers and payroll (some paraphrase included):
1. Employment Insurance premium reduction
Budget 2019 will reduce the Employment Insurance (EI) premium rate to $1.61 per $100 of insurable earnings for 2020, down from the current $1.62.
2. New Canada training benefits
To help workers gain new skills, the federal government is creating new training benefits that will apply to the 2019 and subsequent taxation years and is comprised of three components, a), b) and c).
a) A non-taxable Canada Training Credit will help with the cost of tuition and training fees. This refund would be claimed when Canadians file their tax return. The refundable tax credit allows individuals to cover up to half of eligible tuition and training costs, with a $250 notional account each year and a lifetime limit of $5,000. The notional account will start for the 2019 taxation year and the credit will be available for expenses claimed for the 2020 taxation year. Earning and income thresholds under the new credit will be subject to annual indexation. Moreover,
To accumulate $250 in a year, an individual must:
- File a tax return for the year.
- Be at least 25 years old and less than 65 years old at the end of the year.
- Be a resident of Canada throughout the year.
- Have certain earnings of $10,000 or more in the year.
- Have an individual net income for the year that does not exceed the top of the third tax bracket for the year (i.e., $147,667 in 2019).
Individuals can claim a tax credit that is equal to the lesser of half of the eligible tuition and fees paid for the taxation year and the individual’s notional account balance for the taxation year. Individuals will be able to accumulate up to a maximum amount of $5,000 over a lifetime. Eligible fees include:
- Tuition fees
- Ancillary fees and charges (e.g., admission fees, exemption fees and charges for a certificate, diploma or degree)
- Examination fees
To be eligible, an educational institution in Canada must be a university, college or other institution providing courses at a post-secondary level, or an institution providing occupational-skills courses that is certified by the Minister of Employment and Social Development Canada. To deliver the Canada Training Benefit, Budget 2019 proposes investing more than $1.7 billion over five years, starting in 2019–20 and $586.5 million per year, ongoing.
b) An Employment Insurance (EI) Training Support Benefit: An Employment Insurance (EI) Training Support Benefit to provide income support during training and, with the cooperation of the provinces and territories, to offer job protection so that workers can take the time they need to keep their skills relevant and in-demand. Specifically, starting in 2020, it will provide up to four weeks of income support for EI benefits within a four year period when an individual takes time off work to pursue training, paid at 55 percent of average weekly earnings. This benefit would cover an individual’s living expenses, such as rent, utilities and groceries. Workers need to accumulate 600 hours of insurable employment to qualify.
c) New leave provisions to protect workers’ ability to take time away from work to pursue training. The federal government intends to consult with provinces and territories on the design of the new Canada Training Benefit to ensure that workers can take the time they need for training, knowing that they’ll have a job to come back to when their training is done.
The federal government will also be consulting with interested stakeholders to finalize the design of the EI Training Support Benefit and leave provisions.
The federal government documents offered the following example on how the training benefit and credit outlined in point would work:
- Step 1: Workers who identify a training course would discuss their plan with their employer, letting them know they’ll need a few weeks of leave to attend the course.
- Step 2: Workers register for the course and provide their employer with proof of enrollment, so the employer will know the leave is for training
- Step 3: Once on leave, workers would apply for the EI Training Support Benefit to take advantage of the paid training leave. Once the application is processed, they will start to receive up to 55 percent of their average insurable weekly earnings, for up to four weeks.
- Step 4: After completing the course, workers would return to work. When they file their income tax return, workers can claim up to half the fees against their Canada Training Credit balance.
3. EI small business premium rebate proposed
Starting in 2020, any business that pays employer EI premiums equal to, or less than $20,000 per year would be eligible for a rebate to offset the upward pressure on EI premiums resulting from the introduction of the new EI Training Support Benefit.
4. Limit on the stock option benefit deduction
The budget announces a $200,000 annual cap on employee stock option grants that may receive tax-preferred treatment. Note that the cap applies for employees of certain “large, long-established, mature firms”. The cap is based on the fair market value of the underlying shares at the time that the option is granted.
The budget proposes that there would be no changes made to the stock option provisions for start-ups and rapidly growing Canadian businesses.
Any changes would apply on a go-forward basis and would not apply to employee stock options granted before the announcement of the legislative proposals. Further details of this measure will be released during the summer of 2019.
5. Making sure everyone who is eligible receives Canada pension plan benefits (CPP)
To ensure that all Canadian workers receive the full value of the benefits to which they contributed, the federal government proposes to introduce legislative amendments to proactively enroll Canada Pension Plan contributors who are age 70 or older in 2020 but have not yet applied to receive their retirement benefit.
The standard age to receive CPP benefits is 65, but some people may choose to delay the start of their pension benefits until age 70. For those who defer their start date, this provides a permanent increase in their pension amount. It is estimated that with this change, approximately 40,000 individuals over the age of 70 who are currently missing out would begin to receive an average monthly retirement pension of $302 in 2020. In addition, approximately 1,500 Canadian seniors turning age 70 in 2020 will be proactively enrolled, receiving an estimated average monthly retirement pension of $645. By 2040, as many as 4,000 people could be proactively enrolled each year.
The government also proposes extending the period under which a person can choose not to receive a CPP retirement pension from six months to a year to ensure that no one is disadvantaged. To cover the start-up costs of proactive enrollment, $9.6 million would be sourced from the Canada Pension Plan Account.
6. Protecting Canadians’ private pensions
In recent years, concerns have been raised about the security of some workplace pensions when the employer goes bankrupt. To ensure that Canadians can have greater peace of mind when it comes to their retirement, the federal government proposes introducing legislative amendments to the Companies’ Creditors Arrangement Act, the Bankruptcy and Insolvency Act, the Canada Business Corporations Act and the Pension Benefits Standards Act, 1985 to better protect workplace pensions in the event of corporate insolvency.
Budget 2019 proposes new measures that will make insolvency proceedings fairer, more transparent and more accessible for pensioners and workers. This will be accomplished in part by requiring everyone involved to act in good faith, and by giving courts greater ability to review payments made to executives in the lead up to insolvency. At the same time, changes to corporate law will set higher expectations and better oversight of corporate behaviour. It will be made clear that federally incorporated businesses are able to consider diverse interests, such as those of workers and pensioners in corporate-decision making.
In addition, publicly traded, federally incorporated firms will be required to disclose their policies pertaining to workers, pensioners and executive compensation, or explain why such policies are not in place. These firms will also be required to hold and disclose the results of non-binding shareholder votes on executive compensation. The proposed pension measures will protect Canadians’ hard-earned benefits by clarifying in federal pension law that if a plan is wound-up, it must still provide the same pension benefits as when it was ongoing. In addition, allowing defined benefit plans to fully transfer the responsibility of providing pensions to a regulated life insurance company through the purchase of annuities will improve plan sustainability and better protect retirees’ pensions from the risk of employer insolvency.
The government will also continue to engage with Canadians on further ways to support the sustainability of defined benefit plans.
7. Canada Workers Benefits
The budget clarifies that an individual may be considered to be the parent of a child in their care for the purpose of the Canada Workers Benefit, regardless of whether they receive financial assistance from a government under a kinship care program. As a result, kinship care providers will be eligible for the Canada Workers Benefit amount available for families, provided all other eligibility requirements are met. This measure will apply for the 2009 and subsequent taxation years (retroactive). In addition, the budget clarifies that financial assistance payments received by care providers under a kinship care program are neither taxable, nor included in income for the purposes of determining entitlement to income-tested benefits and credits. This measure will apply for the 2009 and subsequent taxation years (retroactive).
8. Registered Plans and Deferred Annuities
The current rules governing registered plans require that the plan begin to pay the annuitant at age 71. Budget 2019 proposes to amend the ITA by permitting certain registered plans (RRSPs, defined contribution registered pension plans (RPPs), registered retirement income funds (RRIFs), deferred profit sharing plans and pooled registered pension plans (PRPPs)) to purchase advanced life deferred annuities (ALDAs), the commencement of which can be deferred up to age 85. Budget 2019 also proposes to amend the ITA by permitting PRPPs and defined contribution RPPs to provide a variable payment life annuity (VPLA) to plan members. Currently, these plans can only provide retirement benefits to their members by means of transfers to members’ RRSPs or RRIFs, variable benefits paid to members, or by purchasing an annuity with a licensed annuity provider. The VLPA payments can vary based on the investment performance of the fund and the mortality experience of the VPLA annuitants. Budget 2019 also enumerates several design restrictions that will apply to VLPA.
9. Other measures of interest include:
Prepare young Canadians for good jobs by helping make education more affordable through lowered interest rates on Canada Student Loans, making the six-month grace period interest-free after a student loan borrower leaves school, and creating up to 84,000 new student work placements per year by 2023-24.
Help Canadians with the cost of prescription drugs by taking steps towards a national pharmacare plan, starting with creating a new Canadian Drug Agency that could lower Canadians’ drug costs by as much as $3 billion per year, developing a national formulary for prescription drugs, and a national strategy for high-cost drugs for rare diseases.
Security for low-income seniors: Budget 2019 proposes a series of measures to help Canada’s seniors keep more money in their pockets, receive the Canada Pension Plan benefits they are entitled to, and stay active and involved in their communities. By enhancing the Guaranteed Income Supplement earnings exemption so that they can effectively keep more of their hard-earned income, beginning with the July 2020 to July 2021 benefit year. The enhancement would extend eligibility for the earnings exemption to self-employment income. It would also provide a full or partial exemption on up to $15,000 of annual employment and self-employment income for each GIS or Allowance recipient, as well as their spouse, specifically by:
- Increasing the amount of the full exemption from $3,500 to $5,000 per year for each GIS or Allowance recipient, as well as their spouse.
- Introducing a partial exemption of 50 percent, to apply to up to $10,000 of annual employment and self-employment income beyond the initial $5,000 for each GIS or Allowance recipient, as well as their spouse.
Medical expense tax credit: The budget proposes to amend the Income Tax Act to reflect the current regulations for accessing cannabis for medical purposes under the Cannabis Act. This measure will apply to expenses incurred on, or after October 17, 2018.
Give all Canadians access to high-speed internet so all Canadian homes and businesses have access to 50 Mbps high-speed internet no matter where they live—including people and businesses in rural, remote and northern communities.
Income tax compliance: The CRA will hire additional auditors, create a new data quality examination team to ensure proper withholding, remitting and reporting of income earned by non-residents, and will extend programs aimed at combatting offshore non-compliance, among other things. The budget also proposes to invest $65.8 million over five years to improve the CRA’s information technology systems.