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Canadian Tax Regime To Be Enhanced From 2019

by Mike Godfrey,, Washington

28 December 2018

Canada's small business tax rate will be reduced from 10 percent to nine percent from January 1, 2019, as part of a suite of new year tax changes.

The rate was previously reduced from 10.5 percent in January 2018.

The federal Government said that, thanks to this reduction, the combined federal, provincial, and territorial average income tax rate for small business will be 12.2 percent. It said this rate is the lowest in the G7 and the fourth lowest among members of the OECD. The measure should save small businesses up to CAD7,500 (USD5,556) in federal taxes a year.

The taxation of non-eligible dividends – generally dividends distributed from corporate income taxed at the small business rate – will be adjusted to reflect the reduction in the small business rate.

Canada's Fall Economic Statement also included new write-off and investment incentives, to be effective from January 1, 2019.

The Government will allow businesses to immediately write off the full cost of machinery and equipment used for the manufacturing and processing of goods, as well as the full cost of specified clean energy equipment. It will introduce an Accelerated Investment Incentive, to allow businesses of all sizes and in all sectors to write off a larger share of the cost of newly acquired assets in the year the investment is made.

Other tax changes taking effect in 2019 include:

  • Measures to limit the ability of Canadian-controlled private corporations holding significant passive investments to benefit from the small business tax rate, and to restrict Canadian-controlled private corporations from obtaining refunds of taxes paid on investment income while distributing dividends from income taxed at the general corporate rate;
  • As part of the phase-out of the accelerated capital cost allowance rate for mining, the percentage of the additional allowance that a taxpayer can claim will be reduced from 80 percent to 60 percent;
  • Eligible oil and gas corporations will generally no longer be able to treat the first CAD1m of Canadian Development Expenses as Canadian Exploration Expenses when renounced to shareholders under a flow-through share agreement;
  • The tax exemption for insurers of farming and fishing property will be eliminated; and
  • The goods and services tax/harmonized sales tax (GST/HST) treatment of investment limited partnerships will be brought into line with the GST/HST treatment of other investment plans such as mutual funds, segregated funds, and pension plans.

TAGS: compliance | tax | investment | small business | business | sales tax | tax compliance | tax incentives | mining | energy | corporation tax | goods and services tax (GST) | tax thresholds | oil and gas | manufacturing | tax rates | Canada | dividends | tax reform | services

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