There are a number of small but important changes to Canada's tax code that became effective on January 1st, 2020. Canadian business owners should know about these changes, both on the business and professional income side and the individual income tax side of the equation. Here are the most significant.
The basic personal amount, or BPA, is the amount of individual income that is exempt from federal income tax. For 2020, the BPA is increasing to $13,229. The BPA is scheduled to continue to increase to $15,000 by the year 2023.
The BPA begins to phase out for those with incomes over $150,473 in 2020. It phases out completely when income reaches $214,368. This is to ensure that most of the tax benefits don't go to the wealthiest Canadians.
The Home Buyers' Plan
The Home Buyers' Plan, or HBP, is designed to help make the dream of homeownership affordable to ordinary Canadians. The HBP helps first-time buyers save up for a deposit by allowing a tax-advantaged withdrawal of up to $35,000 from a registered retirement savings plan to buy or build a first home.
Starting this year, the benefit of the HBP will extend to Canadians who experience the breakdown of a marriage or common-law partnership – even if they aren't first-time homebuyers as previously required.
You can now buy advanced life-deferred annuities from registered retirement savings plans, registered retirement income funds, deferred profit-sharing plans, pooled registered pension plans and defined contribution registered pension plans.
Variable payment life annuities are now also permissible under a PRPP and defined contribution RPP.
More details are available here. See: Tax Measures: Supplementary Information.
Workers will see a decrease in EI premiums on their paycheques from $1.62 to $1.58 for every $100 of insurable earnings this year. The amount employers pay will decrease from $2.27 to $2.21 for every $100 of each worker's insurable earnings for 2020.
The maximum insurable earnings limit increases this year to $54,200.
For self-employed Canadians who have opted in to the EI program, the annual earnings required in 2019 will increase to $7,279 for claims filed in 2020.
Residents of Quebec covered under the Quebec Parental Insurance Plan (QPIP) will now pay premiums of $1.20 per $100 of insurable earnings, while their employers will pay $1.68 per $100 of insurable earnings. The maximum annual contribution for a worker in Quebec will decrease by $13.35 to $650.40 (down $18.69 for employers to $910.56 per employee).
CPP premiums are increasing from 5.1% to 5.25% for employees. Minimum pensionable earnings are also increasing to $55,200. This figure takes into account a basic exemption amount of $3,500.
Maximum annual employee and employer contributions are also increasing from $2,748 to $2,898 for 2020.
A different rule applies in Quebec: Employee and employer contributions to the QPP are increasing from 5.55% in 2019 to 5.7% in 2020
Employers may no longer make new specified multi-employer plan (SMEP) contributions for any member after they reach age 71. They may also not make new contributions to a SMEP if the member is already receiving a pension from the plan.
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