Effective April 1, 2018, New Brunswick’s lower rate on corporate income tax decreases to 2.5%. This is an 0.5% decrease from the province’s lower rate of 3%, which was established in April 2017.
The lower rate applies to corporate income below the business limit of $500,000. That means your small business clients can save up to $2,500. For example, if a client reports $500,000 in corporate income, they pay only $12,500 in provincial income tax for 2018. When the rate was 3%, the provincial income tax on $500,000 was $15,000. Corporate income that doesn’t qualify for the lower rate faces the higher rate of 14%.
The province also updated its tax credit for non-eligible dividends, which are based on corporate income that has been taxed at the lower rate. As of Jan. 1, 2017, the New Brunswick tax credit for non-eligible dividends is 3.245%. The changes to the tax credit result in an combined marginal tax rate of 46.88% for tax year 2018 and 47.75% in 2019. That’s the total of the federal tax rate and the provincial tax rate. The tax rate for eligible dividends in New Brunswick is substantially lower, because those dividends are sourced from income that was taxed at the higher rate.
To help your clients reduce their tax liability, stay abreast of changes to the tax code. Rather than just crunching the numbers, talk with your clients about strategies that can help them to save money. With these shifts, your small business clients need to plan for the lower tax rate, and your investor clients may want to focus on eligible dividends instead of non-eligible dividends.