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Every year, the CRA issues changes that impact business owners and their employees. Here are a few of the more significant tax changes for 2014:
EI premium rates frozen. Employment insurance (EI) premium rates will be frozen for 2014, 2015 and 2016 at $1.88 per $100 of insurable earnings, and the maximum insurable earnings for 2014 will increase to $48,600 from $47,400. As a result, employees will contribute a maximum of $913.68, and employers will contribute a maximum of $1,279.15 per employee. Note that residents of Quebec will pay $1.53 per $100 of insurable earnings for 2014, for a maximum of $744 for employees and $1,041 for employers.
New disclosure requirements for SR&ED. More stringent disclosure requirements are now in place for scientific research and education development (SR&ED) claims. For example, the modified T661 form requires mandatory disclosure of the claim preparer and associated billing arrangements, and the taxpayer and preparer may be jointly and severally liable for the accuracy of the claim. Failure to disclose the name of the preparer carries a $1,000 penalty.
More details required on T1135. CRA has revised the Foreign Income Verification Form (T1135) to include more detailed disclosures about each specified foreign property, rather than cumulative cost information. For example, taxpayers must disclose the country where each property is located, the maximum cost of each property held during the year (as well as its cost at year-end) and any gain or loss recognized on the sale of a property.
New rates on non-eligible dividends. Beginning January 1, 2014, the tax paid on non-eligible dividends will increase due to changes in the dividend tax credit (DTC) and gross-up factor. The DTC declines from 13.333 percent to 11.0169 percent, and the gross-up rate declines from 25 percent to 18 percent. The top federal rate on non-eligible dividends rises from 19.85 percent to 21.22 percent.
LCGE Increase. The lifetime capital gains exemption (LCGE) increases from $750,000 to $800,000 in 2014, with further increases indexed to inflation moving forward. Taxpayers who sell shares of a qualified small business corporation (QSBC) or farm or fishing property may be eligible for a cumulative capital gains deduction of $400,000.
Note that shares of an SBC are “qualified” by meeting two main criteria — one concerning ownership of the shares and one concerning the assets of the corporation. Briefly, throughout
the 24 months immediately preceding the sale, the shares must have been owned by the individual (or a person or partnership related to him or her) claiming the exemption. In addition, the company must be a Canadian-controlled private corporation, and at least 90 percent of its assets must be used in an active business in Canada.
E-filing for non-resident corporations. Non-resident corporations now have the option of filing their T2 corporate tax returns electronically. Note that e-filing is not yet available for insurance companies.
First-time donor super credit. A new federal tax credit is available for first-time donors to a registered charity. The credit applies to cash donations up to $1,000 made after March 20, 2013 through 2017. The credit is 40 percent of the donation for amounts under $200, and 54 percent of the donation for amounts between $200 and $1,000. For purposes of this credit, taxpayers are considered to be first-time donors if neither they nor their spouse or common-law partner have claimed and been allowed a charitable donations tax credit for any year after 2007.
Some of these changes are quite complicated, and all are nuanced. It’s imperative to review your specific tax situation with your tax advisor and work together to create a plan to accommodate these and other recent changes.
Contact DJB today to arrange a time to discuss your corporate and individual tax concerns.