Federal Finance Minister Jim Flaherty delivered the 2012 federal budget on March 29. The budget contains items of interest to payroll professionals including proposed future employment insurance (EI) rates.
No changes announced to CPP contribution rates
The budget did not propose any changes to the contribution rates for the Canada Pension Plan.
Future EI premium rates proposed
The budget proposes the Canada Employment Insurance Financing Board (CEIFB) set the EI premium rate at the following rates over the next several years:
•1.88 per cent for 2013
•1.93 per cent for 2014
•1.98 per cent for 2015
•1.95 per cent for 2016
The budget also proposes legislative amendments that would allow the CEIFB to set the EI rate earlier in the fall in order to provide employers and workers with more advance notice of changes for the next year. Currently, the CEIFB must announce the rate for the following year by Nov. 14 of the current year.
No changes announced for personal income tax rates/brackets announced
The budget did not propose any changes to personal income tax rates, tax brackets or personal tax credit amounts.
Taxability of employer contributions to group sickness or accident insurance plans
The budget proposes to make changes affecting the way the Income Tax Act treats employer contributions to group sickness or accident insurance plans. Budget documents state amendments will be made to the act “to include the amount of an employer’s contributions to a group sickness or accident insurance plan in an employee’s income for the year in which the contributions are made to the extent that the contributions are not in respect of a wage-loss replacement benefit payable on a periodic basis.”
The proposal would not affect employer contributions to private health services plans.
The proposal would apply to employer contributions made on or after March 29, 2012 for contributions that apply to coverage after 2012, except that contributions made on or after March 29, 2012 and before 2013 would be included in an employee’s income for 2013.
Small business hiring credit to be extended
The budget proposes to extend by one year its temporary Hiring Credit for Small Businesses that employ new employees. The one-time credit is for up to $1,000 and, with the extension, would apply against the increase in the employer’s Employment Insurance premiums in 2012 over what the employer paid in 2011. The proposal would apply to businesses with total EI premiums of no more than $10,000 in 2011.
Overseas employment tax credit to be eliminated
The budget proposes to eliminate the Overseas Employment Tax Credit gradually over four years, beginning with the 2013 tax year. The phase-out would apply as follows: the 80 per cent factor applied to an employee’s eligible foreign employment income for calculating the tax credit would be reduced to 60 per cent for 2013, to 40 per cent for 2014 and to 20 per cent for 2015.
As of the 2016 tax year, the tax credit would be eliminated. The phase-out would not apply to foreign employment income an employee earned in relation to a project or activity the employer committed to before March 29, 2012. For employees in this situation, the 80 per cent factor would continue to apply; however, the credit would still be eliminated as of the 2016 tax year.
•EI Best 14 Weeks Pilot Project: The budget proposes to extend the Best 14 Weeks pilot project until April 2013. After that time, a new approach to calculating EI benefits would be introduced.
•Long-term disability plans: The budget proposes to introduce legislation to require federally-regulated employers in the private sector to insure long-term disability plans they offer to their employees. This proposal would protect employees whose employers go bankrupt by ensuring they will continue to receive the benefits.
•Employee Profit-sharing Plans (EPSPs): The budget proposes to tighten the rules that apply to EPSPs to “discourage excessive employer contributions”. This would be achieved by applying a tax to specified employees (i.e., family members) for employer contributions that exceed 20 per cent of the employee’s annual salary. The tax would consist of two parts: the top federal marginal tax rate of 29 per cent and the top marginal tax rate in the province in which the employee resides. The government also proposes to introduce a new tax deduction to ensure excess EPSP contributions would not be subject to regular income tax. The proposed measure would apply to employer contributions made on or after March 29, 2012, except for those made before 2013 under a legally binding arrangement entered into before March 29, 2012.
•Financial support for employers of reservists: The budget proposes to provide financial support to employers of reservists in order to offset the costs employers incur for reservists being away from work, such as hiring and training replacement staff, extra overtime costs for existing employeesThe government plans to provide more information on this initiative in the coming months.
•Enhancements to CRA service: The budget proposes a number of measures to improve service between businesses and the Canada Revenue Agency (CRA). Beginning April 16, 2012, businesses would be able to send in specific queries and receive replies from the CRA electronically through the agency’s My Business Account portal. The CRA also plans to revise its website to make it more “task based” so it can provide a “one-stop-shop” for businesses with clearer links to its electronic services.
•OAS/GIS changes: The budget proposes to increase the age at which individuals are eligible for Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) from 65 to 67. The change would be made gradually, beginning in April 2023 and would be complete by January 2029. This would mean individuals born on or after February 1, 1962 would have to be age 67 to be eligible to receive OAS benefits. Those born between April 1, 1958 and January 31, 1962 would be eligible for benefits between ages 65 and 67, depending on their date of birth (e.g., someone born in June 1959 would be eligible once they reach the age of 65 years and 8 months, while someone born in December 1961 would not be eligible for benefits until they reach the age of 66 years and 11 months.) Those born on March 31, 1958 or earlier would not be affected by the change. The budget also proposes to allow individuals to make the choice to defer receiving their OAS pension for up to five years. Those who did this would receive a higher, actuarially adjusted, annual pension. This proposal would apply beginning on July 1, 2013.
More information on these proposals can be found on the Ministry of Finance’s website at www.fin.gc.ca/fin-eng.asp.
This article was put together by the payroll group at Carswell, a Thomson Reuters business, which publishes the Canadian Payroll Manual and operates the Carswell Payroll Hotline. For more information, visit www.carswell.com.
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