When it comes to net earnings in 2019, it won't be a particularly happy new year for northern taxpayers and small businesses.
Starting this month, changes to Canada Pension Plan (CPP) contributions means Northerners will see a slight overall decrease on their pay cheques.
“The CPP premium goes up and then the (Employment Insurance) EI premium goes down slightly but because CPP premiums are two and a half times EI, obviously you end up paying more in increases than you're saving in decreases,” said Andy Wong, a tax consultant based in Yellowknife.
“They will see a slight reduction in the paycheque because of the CPP premium increase, and I think we have to emphasis slight reduction because its not a jump.”
The CPP contributions will change to 5.1 per cent from 4.95 per cent on the first $60,000 of a person's earnings. The changes to EI will be a decrease on premiums to $1.62 from $1.66 per $100 of earnings. Wong stressed the change to an individual's pay cheque will be slight, however the implementation comes at a time where Northerners are also facing an increase in the cost of living. The Consumer Price Index rose steadily throughout 2018 in the NWT while many other jurisdictions enjoyed a decrease.
It is not all bad news for the everyday Northerner as Wong added commitments from the Canadian Revenue Agency (CRA) will make it easier in the future for Northerners to file their tax returns.
The agency promised a more reasonable audit system when Northerners claim travel expenses on their northern tax deduction. The CRA has faced complaints from northern taxpayers in recent years after facing increased scrutiny at tax time due the agency's insistence that Northerners prove they are claiming the “lowest return airfare” rate on their travel expenses.
Wong said expects the agency will make it easier for Northerners to claim the deduction.
“What the federal government has committed to do back in November was to make it more reasonable for Northerners to get the lowest return airfare,” said Wong.
“The complexity is they are consulting now as to what that could look like. So, what they're saying is they will make it easier for you to get that (lowest) number, which is a big step forward.”
Currently, Northerners are allowed to file for a tax rebate on two trips outside of the territory based on the lowest possible possible airfare to the nearest designated city, usually Edmonton, within three months of the booked trip. Wong said while it is unclear how the government will tangibly change this system, he said the federal commitment is a step in the right direction.
Changes for small business
Small businesses are also face tax rate changes in the new year. Wong says small businesses currently pay a tax rate of 15 per cent on the first $500,000 of their businesses earnings.
That figure is now going down to 10 per cent but Wong warns local businesses that if they keep too much 'passive income' their tax rate will actually go up.
“For small businesses the tax rate is actually dropping one percent, that's good news. Coming down from 15 per cent to 14 per cent on profit of up to $500,000,” said Wong. “But, there's a ceiling of $50,000 in passive income in which it doesn't change your corporate tax rate but once the passive income exceeds $50,000 it will affect your corporate tax rate.”
Passive income includes profits generated through interest, capital gain, rental profits and other non-active income. Wong says if companies don't take that passive income and invest it back into their business, they could face a much stiffer tax rate. Businesses could invest passive income into creating more jobs rather than sitting on that generated income.