For many Canadians, the changes will be slight, considering CPP’s cut is rising while EI is falling.
Small business owners will see additional changes: the tax rate is set to fall, but passive investment income will be taxed more heavily.
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Here’s a breakdown of some of Canada’s 2019 tax changes.
EI premium rate lowers thanks to strong employment numbers
Canada’s unemployment rate has dropped to 40-year lows, resulting in reduced demand for EI and allowing Ottawa to shrink the amount it collects to keep the fund afloat.
EI rates that employees pay are dropping by four cents per $100 of insurable earnings from $1.66 to $1.62. In Quebec, the rates are dropping five cents per $100 of insurable earnings from $1.30 to $1.25.
The amount employers contribute, which is 1.4 times what employees pay, will also be reduced.
The changes, announced in September, go into effect Jan. 1.
“This will be the lowest EI premium rate since 1980 — and for most Canadian workers, the lowest they have paid since entering the workforce,” Finance Minister Bill Morneau and Social Development Minister Jean-Yves Duclos said in a joint statement.
The EI rate is set by a commission that has been in place for 75 years. The rate is adjusted according to a seven-year break-even mechanism that aims to provide stable rates as well as to ensure the premium collected goes only to EI purposes.
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CPP set to increase annually
The CPP is being “gradually enhanced” over the next seven years by way of increased contributions — meaning you gradually pay more now in order to get more later on. The overall aim is to grow the amount you will receive to one-third of average work earnings, up from a quarter.
In 2019, the amount you contribute will increase to 5.1 per cent, up from 4.95 per cent, for earnings between $3,500 and $57,400. These contributions are matched by your employer.
Here’s how much that works out to, according to a Canadian Federation of Independent Business (CFIB) estimate:
- Someone earning $27,450 will pay $36 more annually,
- Someone earning $55,900 will pay $79 more annually,
- Someone earning $85,000 will pay $83 more annually.
The changes will only impact those currently paying into CPP. Eligibility for CPP is not impacted, nor is the amount people are currently receiving.
You can see how much EI and CPP you are likely to pay by using the Government of Canada’s online payroll deductions calculator.
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The EI and CPP changes will likely make the biggest impact on small businesses and self-employed Canadians, says Monique Moreau, VP of national affairs at the CFIB.
“What the Canadian may see on their pay stub may not seem like a lot to them but they’re not seeing the other end of it, which is what their employer pays on their behalf,” said Moreau.
“You have to keep in mind that anyone who is self-employed actually pays it twice…so those business owners are going to be feeling it even more.”
Small business tax changes
Small business owners are set to get a tax break this year by way of a reduced overall tax rate, falling to nine per cent from 10 per cent.
This will result in annual savings of $7,500 for small businesses, according to CFIB.
Meanwhile, a businesses’ income over $50,000 from passive investments such as real estate, stocks and bonds will be hit with higher taxes. The more a business holds, the more their small business deduction limit will be reduced.
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With these changes, along with new carbon taxes, Moreau predicts that it’ll be over a year from now when business owners find themselves “holding the bag” over these “complicated tax changes.”
“We know that the average small business owner doesn’t know a lot about these changes,” said Moreau.
“While it may not impact a whole many of them, the government hasn’t done a particularly great job in communicating what those changes mean to business owners who do use it.”
WATCH: Tax changes ahead in 2019