Personal income taxes represent one of the biggest expenses for most Canadian families. Although the 2019 personal tax deadline is almost upon us, it is not too soon to start thinking about some of the tax changes for 2020, which may have an impact on your household budget.
Increase in the Basic Personal Amount
The basic personal amount is a non-refundable tax credit that all taxpayers are eligible to claim. It represents the amount of taxable income that may be earned without incurring any tax payable. For 2019, the basic personal amount is $12,069.
For 2020, this basic personal amount is set to increase by inflation to $12,298. However, on December 9, 2019, the federal government proposed to increase the maximum basic personal amount for 2020 up to $13,229, depending on the individual’s taxable income.
More specifically, this “additional” basic personal amount of $931 for 2020 will be gradually reduced when taxable income is in excess of $150,473 and is reduced to zero when taxable income reaches $214,368.
The maximum basic personal amount is proposed to increase annually over the next four years, reaching $15,000 in 2023. However, a portion of this increase will only be available on a taxable income tested basis.
The federal government also proposed to increase the spousal/common-law partner amount and the eligible dependant amount (where applicable) by the same amount as the basic personal amount. The phase-out of any “additional” amount for these credits would be based on the taxable income of the taxpayer making the claim.
Digital News Subscription Tax Credit
The digital news subscription tax credit is a non-refundable tax credit for amounts paid by individuals to a “qualified Canadian journalism organization” for a digital news subscription.
The maximum credit is calculated as 15% of the total amount paid for digital news subscription(s) in the year, up to a maximum of $500. Accordingly, the maximum tax savings available will be $75.
This new tax credit is available for the years 2020 to 2024.
Canada Training Credit
The Canada Training Credit (CTC) is a new refundable tax credit that will cover up to half of eligible tuition and fees associated with training, to a lifetime maximum of $5,000.
Beginning in 2019, eligible individuals will receive a credit of $250 each year towards the training amount limit in a “notional” account. The first year that this credit may be claimed is 2020.
To be eligible to accumulate $250 in a year (for the next year), an individual must meet the following criteria:
- File a tax return for that year;
- Be at least 25 years old and less than 65 years of age at the end of the year;
- Be resident of Canada throughout the year;
- Have eligible earnings for the year (i.e.: employment, self-employment) greater than $10,000; and
- Have individual net income for the year that does not exceed the top of the third federal tax bracket ($147,667 for 2019).
The amount of credit that may be claimed is the lesser of:
- Half of the tuition and other eligible expenses paid for the year; and
- The balance of the individual’s accumulated training amount limit for the taxation year.
The balance of the accumulated training amount limit for the taxation year will be communicated annually on the Notice of Assessment from CRA.
Advanced Life Deferred Annuities
Generally, RRSP funds must be converted to a RRIF or used to purchase an annuity by the end of the year that a taxpayer turns 71, with payments to begin in the following year.
Beginning in 2020, the federal government has proposed to permit taxpayers to purchase a new Advanced Life Deferred Annuity (ALDA) under certain registered plans including an RRSP, RRIF, deferred profit sharing plan, pooled registered pension plan and defined contribution plan. The commencement date of this annuity can be deferred until age 85.
The lifetime limit for an ALDA will be 25% of a specific amount of a qualifying plan, calculated as:
- The value of all property held in the qualifying registered plan at the end of the previous year; and
- Any amounts from the qualifying plan used to purchase ALDAs in previous years.
ALDAs will also have a maximum lifetime limit of $150,000 from all qualified plans. For years after 2020, this lifetime limit will be indexed to inflation and rounded to the nearest $10,000.
If you have any questions regarding the above tax changes, please do not hesitate to contact your Shimmerman Penn advisor.
