Are you prepared for what Canadian tax laws changed?

Basic Personal Amount

The basic personal amount (BPA) is the non-refundable tax credit given to every individual in Canada. The BPA is the amount a Canadian resident can earn annually without having to pay any federal income tax.

It’s proposed that The Basic Personal Amount will increase to $13,229 for 2020. This is the first step in the Government’s proposal to increase the amount to $15,000 by 2023.

Home Buyers’ Plan

The Home Buyers’ Plan (HBP) helps first-time home buyers save for a down payment by allowing them to withdraw up to $35,000 from a registered retirement savings plan to purchase or build a home without having to pay tax on the withdrawal.

Beginning in 2020, individuals who experience a breakdown of a marriage or common-law partnership—in the year of making a withdrawal or in any of the four preceding calendar years—will be able to access the Home Buyers’ Plan. This tax-free withdrawal is allowed even if they do not meet the first-time home buyer requirement.

Permitting Additional Types of Annuities Under Registered Plans

In an aim to provide Canadians with greater flexibility in managing their retirement savings; there are a proposed two new types of annuities to be permitted under the tax rules for specific registered plans:

• Purchases of advanced life deferred annuities will be allowed from a registered retirement savings plan, registered retirement income fund, deferred profit-sharing plan, pooled registered pension plan (PRPP) and defined contribution registered pension plan (RPP); and
• Variable payment life annuities will be permitted under a PRPP and defined contribution RPP.

The measures will apply to the 2020 and subsequent taxation years.

Contributions to a Specified Multi-Employer Plan for Older Members

The CRA has proposed to prohibit contributions to a Specified Multi-Employer Plan (SMEP) at the end of the year where the member turns 71 years of age, and to a defined benefit provision of a SMEP if the member is receiving a pension from the plan (except under a qualifying phased retirement program).

The proposed changes will ensure that employers do not make pension contributions on behalf of older SMEP members in these situations from which they cannot benefit.

Foreign Affiliates—Reporting Requirements

The information return deadline in respect of a taxpayer’s foreign affiliates is accelerated from 15 months after year-end to 12 months after year-end for taxation years of a taxpayer that begin in 2020, and to 10 months after year-end for taxation years of a taxpayer that begin after 2020.

Employment Insurance Premiums

EI premiums on workers’ pay cheques decrease from $1.62 to $1.58 for every $100 of insurable earnings in 2020.

Meanwhile, employers will pay $2.21 for every $100 of the workers’ insurable earnings, down six cents from 2019 rates.

EI adjustments will also see a $1,100 spike in the maximum insurable earnings to $54,200.

Workers with the maximum insurable earnings for 2020, for example, would pay about $0.15 less in EI premiums per bi-weekly pay cheque.

Canada Pension Plan Premiums

CPP premiums increase from 5.1 to 5.25 percent for employees. As well, the maximum pensionable earnings will rise to $55,200, taking into account a basic exemption amount of $3,500 – this will mean the maximum annual employee and employer contribution will be $2,898, a rise from $2,748.90 in 2019.

Workers with the maximum pensionable earnings for 2020, for example, would see an increase of CPP premium deductions of $5.73 per bi-weekly paycheque.

Stricter approach to tax avoidance

In 2017, Canada signed on to an agreement from the Organization of Economic Co-operation and Development (OECD). The treaty creates a new instrument in which governments can use to prevent tax avoidance. The Multilateral Instrument (MLI) will reduce opportunities for tax avoidance by multinational enterprises, specifically affecting Canadian law on withholding taxes and capital gains.