Good news: 

  • Student loan relief. Starting in 2019-2020, the interest rate on variable Canada Student loans will be reduced to prime. Fixed Canada Student loans interest will be reduced to prime + 2.0%. No interest will be charged during the 6 month grace period after graduation.
  • Home buyer plan withdrawal limit is increasing from $25,000 to $35,000 effective March 20, 2019. This will allow first time home buyers to take out more money from their RRSPs to purchase a home.
  • Zero-emission vehicle write-offs. Qualifying vehicles purchased from March 20, 2019 to December 31, 2023 will receive a full tax write-off in the year of purchased of up to $55,000 plus HST. The write-off will be pro-rated based on business usage of the vehicle. 
  • Intergenerational Business Transfers. The government still has this on their radar and is acknowledging that changes need to be made so that if you sell your practice to your children you are not in a “Win/Lose” situation. 
  • Canada Training Credit (CTC). Starting in 2019, new refundable tax credit will allow qualified individuals to save some taxes on qualifying tuition and fees associated with training. 
  • Registered Disability Savings Plan (RDSP) improvements. RDSP will not have to be closed if the beneficiary does not qualify for the disability tax credit. RDSP will be protected from creditors in the event of bankruptcy.

Bad news: 

  • Increased spending on tax compliance (i.e. CRA auditors). Expect more disruptions from CRA reviews and audits
  • Stricter rules on Individual Pension Plans (IPP). This may limit the flexibility of transferring funds out of an IPP to a new IPP instead of a RRSP.

What will your corporate tax bill be?

Taxable Income $ 2019 Combined Federal & Ontario Tax Rate (%)
0 – 500,000 Between 12.50% to 18.50%*
500,001+ 26.50%

*Subject to reduction of small business deduction based on passive income earned.

Applies to active business income of a Canadian Controlled Private Corporation (CCPC) (i.e. DPC/H/TSC). Investment income of a corporation would be taxed at 50.17% tax rate.

Key Tax Rates and Figures:

2019 Basic personal exemption (i.e. income that can be earned virtually tax-free): $12,069

Ordinary Income  Marginal Tax Rate
$0 – $43,906 20.05%
$43,907 – $47,630 24.15%
$47,631 -$77,313 29.65%
$77,314 – $87,813 31.48%
$87,814 – $91,101 33.89%
$91,102 – $95,259 37.91%
$95,260 – $147,667 43.41%
$147,668 – $150,000 46.41%
$150,001 – $210,371 47.97%
$210,372 – $220,000 51.97%
$220,001 and up 53.53%

What will my personal tax bill be for 2019?

PERSONAL TAX TABLE

Self employed Taxable Income

($000’s)

Estimated Taxes

Including Ontario Health Premium ($000’s)

20 2
30 4
40 6
50 8
60 11
70 14
80 17
90 20
100 24
150 45
200 69
250 95
300 122
400 176
500 229
1,000 497

*In addition to the above, add CPP (maximum $5,498) if you are self-employed.

The following chart compares how much a top-bracket investor needs to receive as interest, capital gains, or dividends in order to be left with the same after-tax return.

Equivalent Personal After-Tax Investment Yields for Individual with Top-Bracket Taxable Income1

 

2019

 

Interest or Ordinary Income

 

 

Capital Gains

 

 

Canadian Eligible

Dividends2

 

Canadian

Non-Eligible Dividends3

$ Received 100.00 63.45 76.60 88.35
Taxes 53.53 16.98 30.13 41,88
Net Return 46.47 46.47 46.47 46.47


1
Taxable income above $220,000 in 2019 (Top tax bracket starts at $220,001)
2 Assumes dividends from CCPCs paying income tax over the small business rate or dividends received by CCPC from   public companies and paid out as dividends
3 Assumes dividends from CCPCs paying income tax only at the small business rate

Hence, those individuals in the top tax bracket would net the same amount after tax in 2019 if they received $100 in interest, $63.45 in capital gains or $76.60/$88.35 in Canadian dividends. Capital gains are taxed at the lowest rate. Dividends are taxed at a lower rate than regular income including interest, but at a higher rate than capital gains. Canadian dividends from CCPC paying income tax over the small business rate of 12.5% (i.e. income which was taxed in CCPC’s hands at 26.5%) or from public companies are taxed at the lower rate.

 

This summary was prepared by DCY Professional Corporation Chartered Professional Accountants who have been advising dentists/doctors for decades. Additional information can be obtained by phone (416) 510-8888, fax (416) 510-2699, or e-mail david@dcy.ca, basil@dcy.ca, eugene@dcy.ca, louise@dcy.ca.  Visit our website at: www.dcy.ca. This article is intended to present tax saving and planning ideas and is not intended to replace professional advice.