Government puts the chill on EI rates, but premiums still hiked for some in 2014


OTTAWA – It’s not just the temperatures that are freezing on this first day of 2014.

The federal government says it’s freezing Employment Insurance premiums, and generally keeping taxes low.

But the Canadian Taxpayers’ Federation says the EI “rate freeze” will actually mean that premiums will go up slightly for some.

In its annual New Year’s Tax Changes report, the federation calculates that maximum employee EI rates will go up by $23 in 2014 to $914.

It says maximum EI premiums paid by employers will also rise by $31 to $1,279.

Overall, EI premium rates will remain at 2013 levels, at $1.88 per $100 of insurable earnings.

The federation adds that Canada Pension Plan premiums will be hiked by $140 for workers earning at least $52,500 per year.

But there will be bigger tax breaks for people who donate to charities for the first time.

They will receive a credit of 40 per cent of the first $200 they donate, rather than the normal 15 per cent credit.

The tax credit for donations over $200 is also rising, to 54 per cent for first time donors, rather than the previous 29 per cent.

Federal Finance Minister Jim Flaherty also points out that Canadians who put money aside can save more, tax free.

Adults 18 years or older will be able to contribute up to $5,500 in a Tax-Free Savings Account this year, on top of any unused contribution room they may have accumulated.

The federal Registered Disability Savings Plan is also being enhanced to improve accessibility and flexibility.

And the Lifetime Capital Gains Exemption will increase to $800,000 from $750,000.

The CTF says that, while some taxpayers in certain provinces will benefit from tax brackets that are indexed to inflation, others in Manitoba, PEI and Nova Scotia aren’t so fortunate.

Indexing tax brackets to inflation limits the amount that governments can increase taxes through higher incomes.

The CTF notes that New Brunswick alone increased its income tax rates for 2014, ranging from a 3 per cent hike of the lowest bracket to a 14 per cent increase for taxable incomes between $78,609 and $127,802.

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Government puts the chill on EI rates, but premiums still hiked for some in 2014

  1. EI is a sly form of tax and equalization for dysfunctional. 20% of the country uses 80% of it.

    Would be better if EI, employers and employees part went to a LIRA in your name/account/control and used as a personal EI fund and if you didn’t use it, left to you for retirement. Even more efficient as it comes without governemtn MER skimming and union wage waste.

    The reality is EI is a employment tax. And I am glad I don’t pay it any more.

  2. As for TFSA versus RRSP versus cash savings….

    TFSA is for everyone, including unemployed dependent spouses. Its like a legal mini offshore account without inflation taxes, without dividend taxes, without the accounting/tax paperwork bloat….. EVERYONE planning to save for retirement should use TFSA before RRSP.

    Cash accounts is best right behind TFSA for savers/investors. Why is simple, gains and dividends are not hammered as hard on inflation taxes. If inflation drives a stock to double, you only pay 1/2 tax on inflation when compared to a RRSP where you will pay 100% tax on inflation.

    RRSPs can be tax traps, this I only recommend them for later in your careers as a income averaging tool. The ONLY way a RRSP makes sense is if you can guarantee a lower tax rate on the way out than you defered on the way in. And for 99% of the career workers under 50, this will not happen. You only want a RRSP+LIRA to be large enough to yield $2000 of LIF income, any more and RRSPs become tax traps. Even in death, your huge RRSP will trigger maximum 45%++ tax rates and thus reduce after tax value.

    I hope this season some media/reporters do some math, as RRSPs are poor retirement choices for most people. It is over sold as to lock you in and generate taxes on inflation. It is ultimately cheaper to pay taxes up front and use TFSA then cash accounts for savings.

    • I am wondering about your statement “The ONLY way a RRSP makes sense is if you can guarantee a lower tax rate on the way out than you defered on the way in. And for 99% of the career workers under 50, this will not happen. ”

      How is this so? Most (professional) people I know have their salaries plateau by 50, unless they get a sudden and significant promotion. In fact, my salary has fallen by about 40% because I had to retrain and change fields due to layoffs, which is what also happened to my husband. When I was employed in the private sector, the most I could expect in terms of a pension was about a third of my salary at retirement, which means a signficant reduction in income and presumeably a lower tax bracket. And I was working at an employer that had quite a good benefits package, so I don’t think the pension was atypically low. So given a typical pension situation, I think gthe lower tax rate is more or less guarenteed. Unless you’re talking about executives with lucrative golden handshake arrangements.

      • Easy, say you add CPP+OAS+GIS and other income, you are already lost all you cheap tax room. Add in other income such as investment accounts or other pensions, you can soon find yourself taxes at 33% to 45% on the next dollar. So if you take out $10,000 you incur as much as $4500 in taxes.

        Now lets say you packed your RRSP for 36 years to the max, it grew to $500,000. At 6% average RIO on investments, that funds a draw rate for 25+ years… thats $30,000 if income taxed at or near maximum rates that is additive to all your other income sources. You will likely pay say 40% tax rate on $30,000 for a $12,000 tax owing attributed to the RRSP draw.

        However, if you did this in a cash account, over the years you would see lower tax rates from gains and dividend being spread out over time and have few if any tax bumps.

        If inflation and tax rates were constant and unchanging, tax deferment is neutral, but once you work that taxes never go down, inflation always goes up, and with any decent fiscal planing you will have other income, RRSPs quickly become a tax trap once they generate more income than the $2k pension amount credit. And that is a small RRSP, say $75k and no other pension qualified source.

        Biggest benefit is near end of career and say you get a bumper income year with a 6 month severance package or planning on having a few years of very low income ahead of you. Then RRSP makes all sorts of sense. Say for 10 years you put 10k/year in and then take 3 years off without much income so you can get it out at a lower rate than you deferred in.

        But a TFSA has the best of all worlds. Even for no-income stay at home spouses as TFSA income doesn’t reduce spousal deductions. It is also more flexible, no hyper-taxation if you need $10k for an emergency roof repair or can get a good deal on cottage property but need cash down when your 50…. or if Ottawa does a tax steal on bank depositors, you can move your money offshore in Mexico or Panama …and not get a whopper tax bill. TFSA flexability alone makes RRSPs a bad idea for other reasons including no taxes on the inflation gains.

  3. Best way to screw the tax man and put charity money to good use?

    On death of the last spouse have your RRSP completely donated to charity. Say you had a $500k RRSP, on death of the final spouse it all becomes 100% taxable at full rates, often as high as 45%. So your estate could get a $225k tax bill. Never underestimate government tax greed even in death.

    Even in life, a RRSP is a bad choice if the amount is more than $75k in todays NPV. If you have no other pension sources, you only want a RRSP of say $75k as to generate a $2,000/year payout for the pension deduction amount. Any more it becomes a tax trap.

    Yes, I made the mistake of getting into tax trap territory with my RRSP, and now paying a higher percentage of taxes on the way out than I deferred on the way in. I would have been better off contributing a lot less and putting in the Cash investment account as I would have capital gains and dividends taxes spread out ofver 35 years for a much lower tax rate.

    But hey, banks and governments love you locked in. That is why they push the RRSP myths. Lock you in then screw you with taxes. But cash/TFSA can be transfered to a sunny vacation without the same level of tax damages. In fact, TFSA comes without tax on inflation and gains…. My TFSA is growing today as I added $5500 and now its balance is $44,000 with $13k of no inflation taxes owed.