Over the past few months, we’ve been hearing a lot about Income Splitting. Despite reservations expressed by Federal Finance Minister Jim Flaherty, the Prime Minister has publicly stated that he remains committed to his party’s 2011 campaign promise to provide tax relief to Canadian families in the form of income splitting.
Income splitting would allow families with minor children to “pool” their income by transferring up to $50,000 dollars in taxable income from the higher earning partner, to take advantage of a lower base tax rate paid by the partner with the lower income.
The families that would benefit most from this arrangement would be those in which one partner does not earn income, or where there is a large difference in the income earned between partners.
Supporters of Income Splitting say that the current tax rules are discriminatory – they provide fewer tax breaks for families in which one partner earns the bulk of the money, despite the fact that most families pool their income to pay for living expenses. Stephen Harper has said that the current rules “treat families the same as roommates living under the same roof with no financial attachment.”
Opponents point out that income splitting would benefit a relatively small number of Canadians, but carry a high price tag. (Some estimates putting the total cost to the federal government at 2.7 billion dollars in lost revenue!)
The 2011 promise from the Prime Minister was contingent on a balanced budget, which is almost certain to happen with the delivery of the 2015 budget next April. With a federal election likely to happen within a few months of this date, you can be certain that Stephen Harper would like to be able to tell Canadians that he’s made good on one of his key election promises – so it’s quite likely that income splitting will become a reality next year! Stay tuned for more updates on this subject.
Our Canadian Government prides itself on being “Business Friendly”, and the 2014 Federal Budget certainly casts them in this light. The budget has been called ‘conservative’ due to the fact that it includes very little new spending on the part of the government with some cost-cutting measures designed to lighten the burden of high taxes and foreign price gouging on our Canadian small businesses. Here are a few highlights we think might be of interest to you:
One of the most significant items in the budget was a promise from our Finance Minister Jim Flaherty to reduce the processing fees that credit card companies levy on businesses and consumers, and revisit the Code of Conduct that governs such fees.
Lowering Business Costs
The government confirmed freezes in Employment Insurance and Canada Pension premiums, which will result in decreased payroll costs for businesses that share these expenses with employees, and more money in the pockets of potential customers.
Hiring Credit Gone
The Hiring Credit, which was advantageous to business, will be gone starting in the 2014 taxation year, but there are some new measures in the budget that promise money for workplace training, as well as the availability of loans to help businesses with the costs of training apprentices and interns.
The government has promised to crack down on foreign operations that charge significantly more for their products and services in Canada, like US based booksellers. This is a consumer-friendly policy that will have some impact on Canadian business, especially of foreign operators reduce their prices and become more competitive.
Perhaps the most promising part of the 2014 budget is the 2015 budget. Flaherty has all but eliminated the deficit with the current plan, and the country will save considerable money in debt service over the next year, as well as maintaining a healthy base of tax income. This means that the next budget will likely include increased spending and decreased taxes, representing a real win for Canadian business!
With the release of the Economic Action Plan for 2014, the government is staying the course they laid down in 2006 – the reduction of the burden of bureaucracy on the Canadian small business.
Recognizing that reporting to the Canada Revenue Agency can be time consuming and expensive, detracting from small business owner’s ability to do what they do best – provide goods and services to their customer base, this year’s Economic Action Plan builds on the successes of the past in delivering more efficient ways to deal with the government. Here are the highlights:
Starting in April, small businesses will be able to file amended T2 Corporate income tax returns online, and to submit electronic requests to the CRA instead of filling out paper forms.
In October, registered My Business Account holders will be able to pay their taxes online, for free, for the first time. As well, payment history and other records will be accessible in one easy to access digital location.
Remittance thresholds are being revised for employer source deductions, which will result in businesses having to make fewer payments to the government, reducing costs to employers by streamlining the payment process.
Taxation rules for individuals who operate both fishing and farming businesses will be simplified, allowing for more understandable and consistent rules.
For small businesses, these changes serve to reinforce the CRA’s commitment to making it easier to operate a small business in Canada. Tax preparation, as well as the monthly paperwork employers must provide to the government will become a little less onerous, so that you can spend more time making customers happy and less time appeasing the Canada Revenue Agency.