Tax Changes – What’s New in 2014

Some of you may be wondering about the tax and financial changes that have taken place between 2013 and 2014. Although last year’s budget did not propose anything too substantial, there were a number of items that came into effect in January 2014.

Dividend Tax Credit for Non-Eligible Dividends

Beginning this January, the effective tax rate on non-eligible dividends has increased. This year, dividend gross-up has been reduced to 18% and the dividend tax credit to 11%. This results in an increase in the top marginal federal rate on non-eligible dividends from 19.58% to 21.22%. Non-Eligible dividends make up the majority of dividends that individuals receive from their corporations and will likely have an impact on personal taxes.

Lifetime Capital Gains Exemption

For 2014, the lifetime capital gains exemption has been increased from $750,000 to $800,000. The increase is effective for dispositions of qualified small-business corporation shares, qualified farm property and qualified fishing property. In addition, for taxation years after 2014, the exemption limit will be indexed to inflation.

New BC Temporary Tax Rate

On June 27, 2013, the BC Government introduced legislation to create a new temporary tax rate on taxable income over $150,000. For 2014 and 2015 only, the top BC rate will be 16.8%. This means that all BC residents will be paying a top combined (Federal and Provincial) tax rate of 45.8% for income over $150,000 in these two years. You may have discussed tax strategies with our office and your accountant to help minimize the amount of income that falls into this new bracket.

Going Paperless

The Canada Revenue Agency (CRA) has created a new service that allows businesses to receive corporate tax information from the CRA online. It’s fast, secure and you can view your mail online at your convenience.

Businesses can currently receive Notices of Assessments and a number of other tax items online for both corporate income tax and GST/HST accounts. Corporations are currently receiving direct deposit applications in lieu of refund cheques. Please let our office know if you require any assistance completing these forms.

Federal Budget 2014

On February 11, 2014, Federal Finance Minister Jim Flaherty tabled the 2014 budget. This budget contains little to change the current income tax environment that will affect the majority of Canadians. It is widely expected the 2015 budget will forecast a surplus and possibly some significant income tax reductions ahead of an expected election that year. The main takeaways from this budget were the changes to the taxation of testamentary trusts.

Testamentary Trusts

Testamentary trusts are created on an individual’s death and are included in a number of wills to provide additional income splitting benefits after death. Prior to the 2014 budget, these trusts were allowed to have graduated tax rates on their taxable income similar to individuals. The 2014 budget will still allow these graduated tax rates for the first 36 months only. If the trust remains in existence for more than 36 months after the death, it will become subject to flat top-rate taxation at the end of the 36 month period. They still provide substantial planning opportunities; however, their overall utility has been impacted.

Tax Deadlines

2013 Income tax returns are due by April 30, 2014. If you have business or professional income, the deadline for you and your spouse is June 15, 2014. However, any taxes payable are still due by April 30, 2014.

The deadline to make RRSP contributions is March 3, 2014 if you wish to deduct them on your 2013 income tax return.

Corporations must file T4 and T5 slips by February 28, 2014. If you are paying a nanny personally, you must issue the T4 slip by February 28, 2014.

Trust returns and T3 slips must be filed by March 31, 2014.