Hiring Credit for Small Business

What is the Hiring Credit for Small Business?

In 2011, the federal government created the Hiring Credit for Small Business (HCSB) to stimulate new employment and support small businesses.

The HCSB is designed to give small businesses relief from the employer’s share of EI premiums. Small businesses can be eligible to receive a credit of up to $1,000 on their payroll deductions account.

Does your business qualify for the HCSB?

As per the CRA website, you are eligible for the HCSB credit if you meet all of the following conditions:

• you deducted EI premiums from the remuneration you paid to your employees, or paid the worker's share of EI premiums for barbers, hairdressers, fishers, or drivers of taxis and other passenger-carrying vehicles and you remitted these premiums (along with your share of EI premiums) to your payroll (RP) account;
• you reported the income and deductions on a T4 slip and filed this information on your RP account for 2011 (see Note below) and 2012;
• the total of employer EI premiums you paid for 2011 (see Note below) was $10,000 or less; and
• your total employer EI premiums increased in 2012

How is the HCSB credit calculated?

CRA will automatically calculate the credit amount for all businesses that are eligible. You do not need to apply for this credit.

CRA will use the EI information from the T4 slips you filed to determine the credit amount your business is eligible for. As per CRA, “the amount of credit is the difference between the employer’s portion of the EI premiums you paid in 2011 and 2012.”

New businesses started in 2012 are also eligible for the HCSB. CRA will use a zero value for the 2011 EI premiums when calculating the HCSB for 2012.

Note: self-employed individuals who pay EI premiums on their earnings are not eligible for the HCSB

Does your child qualify for the Children’s Fitness and Arts Tax Credit?

The following rules apply to be eligible up to $500 non-refundable tax credit for both the Fitness and Arts Tax Credit –

• Child must be under 16 at the beginning of the year to be eligible
• Programs must be ongoing –

o   Weekly program involving a minimum of 8 consecutive weeks’ duration

o   Programs of 5 consecutive days (summer/day camps)

• Children eligible for a disability tax credit are eligible for the fitness and arts tax credit up to the age of 18 and qualify for an addition $500, for a total fitness / arts credit of $1000

In 2012, the taxable benefit for a $500 credit at 15% is $75

Fitness Tax Credit –

This credit requires that the program must include “significant physical activity that contributes to cardio-respiratory enducare plus one or more of: muscular strength, muscular endurance, flexibility, or balance.” (CRA)

Some activities eligible for the fitness tax credit are: basketball, football, hockey, swimming, hiking, horseback riding, karate and sailing

Arts Tax Credit –

This credit requires that the program must meet one of the following criteria, as per the CRA website:

• it contributes to the development of creative skills or expertise in an artistic or cultural activity;
• it provides a substantial focus on wilderness and the natural environment;
• it helps children develop and use particular intellectual skills;
• it includes structured interaction among children where supervisors teach or help children develop interpersonal skills; or
• it provides enrichment or tutoring in academic subjects.

Note: Activities that are part of a regular school program or sports-academics programs do not qualify for either the Fitness or the Arts tax credit.

RRSP vs. TFSA - Which one is right for you?

First, let's determine the difference between the two - 

RRSPs – intended specifically as a retirement savings plan

·         Contributions are tax deductible
·         Maximum contribution: 18% of earned income or $22,970
·         Cashed RRSPs treated as earned income and taxed
·         Age limit for making contributions – 71 years of age

   

TFSAs – can be used to save for anything (retirement, home, car, vacation etc.)

·         Contributions are not tax deductible
·         Maximum contribution: $5,500/year, regardless of your income
·         Withdrawals are not taxed
·         No age limit to making contributions 

      Which option is better for you?

Higher marginal rate today – invest in RRSP first. Generally speaking, RRSPs are better for high-income earners ($70,000+).

Higher marginal rate in retirement than today, then invest in TFSA. TFSAs are better suited for lower-income earners.