New taxes will affect farmers and business owners

The federal government is launching several changes to the taxation system this year that are not that easy to swallow for farmers, small business owners and individual taxpayers.

Government has the right to impose and raise taxes, but its explanations for tax changes sometimes are weak at best and other times imply that they think taxpayers are gullible.

Small business tax

One such change is an adjustment to how Canadian small business will be taxed. The good news is the small business tax rate is finally dropping to nine percent from 10 percent on the first $500,000 of earnings. Unfortunately, the government will over-ride that rate for any portion of income that exceeds $50,000 in passive income, which will then be subject to the substantially higher corporate tax rate.

The government is distinguishing between active income (used to cover operating expenses or reinvestment in capital equipment) and passive investment (funds used to earn interest). It considers those funds to be idle while business generally think of them as contingency should difficulties or opportunities arise in forward fiscal periods to which they need to respond quickly.

The government says it is merely trying to stimulate business to increase hiring or reinvest capital. Some businesses say to the contrary, this change implies government knows more about managing small business enterprises than the owners.

In effect, with this change the government has established a two-tier small business tax system.

CPP and EI

Beginning in January, Canada Pension Plan contributions rose to 5.1 percent from 4.9 percent on pensionable earnings between $3,500 and $57,400. That’s not all, however — the rate is scheduled to rise in stages over the next five years until it plateaus in 2023 at 5.95 percent or a full 1.5 percent higher than the 2018 rate. The government is making you pay now to fund unspecified enhancements to the program in the future. One impact for farmers employing non-resident workers is their need to withhold greater amounts for CPP deductions for payment to the Canada Revenue Agency, or they will be liable for the difference.

Although not neutralizing the above increase, Employment Insurance premiums will drop to $1.62 from $1.66 per $100 of pensionable earnings. New this year, low income workers will now qualify for an improved Canada Workers Benefit. The maximum benefit will increase by $300 for a single person to $400 for a family, bringing the top benefit to $1,355 and $2,335, respectively. However, the benefit will not be delivered until the 2020 tax year.

Carbon tax

The government is committed to a carbon tax policy, which will add to the price at the pump, in your home and to your business enterprise. It is imposing penalty amounts to provinces that object to the federal program of 4.42 cents per litre of gasoline, 3.91 cents per cubic metre of natural gas and 3.1 cents per litre of propane.

Grant Diamond is a tax analyst in Saskatoon, SK., with FBC, a company that specializes in farm tax. Contact: or 800-265-1002.

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