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2018 Provincial and Federal Fall Economic Updates

For those looking for highlights of the recent Fall 2018 provincial and federal economic updates, here is our brief summary.

Ontario

Ontario’s 2018 Economic Outlook and Fiscal Review, released November 15, 2018 by the new Progressive Conservative provincial government, cancelled some of the changes proposed by the previous Liberal government in the 2018 Ontario Budget and introduced new measures. Highlights of the new strategy include:

1. Small business tax

The Ontario government is proposing to not parallel the federal government’s measures to reduce a corporation’s access to the lower small business tax rate when passive income of the corporation (including any associated corporations) exceeds $50,000. This is welcome news for Ontario business owners using their corporations to help save for their retirement.

2. EHT

The Employer Health Tax (EHT) exemption will increase from $450,000 to $490,000 of payroll starting January 1, 2019.

3. LIFT Credit

Introduction of the Low-Income Individuals and Families (LIFT) tax credit to provide up to $850 in annual tax relief (or up to $1,700 for couples) starting in 2019. This non-refundable credit is intended to offset the Ontario personal income tax on individuals earning up to $30,000 of employment income. The credit is gradually reduced for individuals with income greater than $30,000 or those with family income greater than $60,000.

4. Personal Tax Rates

The Ontario government will not proceed with changes proposed in the 2018 Ontario Budget to simplify the calculation of Ontario’s personal income tax. The Liberal government had proposed to replace Ontario’s two surtaxes and five personal income tax rates with seven personal income tax rates applied directly to taxable income. The proposed changes by the Liberal government would have resulted in small tax increases for some taxpayers.

Federal

The federal government’s 2018 Fall Economic and Fiscal Update, released November 21, 2018, introduced tax measures designed to encourage capital investment in Canada. Highlights include:

1. Accelerated Tax Depreciation – Greater first year deductions

The “Accelerated Investment Incentive” proposes to increase the amount of first-year tax depreciation on most capital assets acquired after November 20, 2018 to three times what would normally be allowed in the first-year. The proposals will be phased out gradually starting in 2024. In general terms, these proposals enable the following:

a) Suspension of the “half-year rule”

Normally the tax depreciation available in the first year is limited to 50% of what would otherwise be available. For example, a depreciable asset that would normally be deductible at a rate of 30% per year would be limited to 15% in year . The half-year rule will be suspended and instead the deduction available in the first year is described in point “b” below.

b) 1.5 times the normal annual depreciation rate in year acquired and available for use

The proposals allow for a deduction in year one equal to 1.5 times the normal depreciation rate. For example, let’s assume you acquired an asset that was deductible at a rate of 30% per year. In the year of acquisition, you would be able to deduct 45% (30% x 1.5) of the purchase price as opposed to 15% (described above), or three times the normal first-year deduction

2. Manufacturing and Processing (M&P) Equipment – 100% Deduction in First Year

M&P equipment* acquired after November 20, 2018 will be 100% deductible in the year they are available for use. The accelerated deduction will be gradually phased out after 2023.

3. Clean Energy Equipment – 100% Deduction in First Year

Clean energy equipment** acquired after November 20, 2018 will be 100% deductible in the year they are available for use. The accelerated deduction will be gradually phased out after 2023.

Year-end Planning – Should you purchase capital assets before year-end?

As a result of the new tax measures, you may want to consider accelerating the acquisition of capital assets before your year-end if you have sufficient profit to benefit from the enhanced tax depreciation. Any capital asset acquired has to be available for use before your year-end for tax depreciation to be deducted. Please contact us if you would like to discuss this further.

If you have questions about how these changes might impact your bottom line, we encourage you to scroll down to contact us.

Disclaimer: This article should not be relied upon when making decisions for your business or personal situation. Instead, we strongly recommend that you meet with a Stern Cohen tax advisor for personalized advice that will provide you and your business with the greatest benefit.

*M&P Equipment – Assets that would be eligible to be included in CCA Class 53.

** Clean Energy Equipment – Assets that would be included in CCA Class 43.2

Joe Gervasi and Adam Morke, Tax Specialists at Stern Cohen

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