Written on behalf of Feigenbaum Consulting
Last year, we blogged about the federal government’s proposed tax changes, which outraged small business owners across the country. Due to the almost immediate backlash, the government subsequently took a cautious step back from some of the most controversial proposals.
Now, the issue is back in the news as Conservative Members of Parliament tabled a petition earlier this week containing 45,000 signatures from business owners calling on Ottawa to “abandon” changes to corporate taxes for small businesses.
Budget Bill Approved by Senate
Despite strong lobbying by the Canadian Federation of Independent Business (CFIB) which had urged the government to delay the proposed passive investment rules, the small-business tax changes were approved this month with the Senate passing Bill C-74. The bill was approved without any debate at third reading or any amendments. The measures affecting small businesses are effective immediately.
Sweeping Changes Affecting Small Business Owners
The federal corporate tax rate is currently 15%, while the small-business tax rate is 10%. Under the new provisions, small businesses with more than $50,000 in passive investment income may begin to lose access to the lower small-business tax rate on any active business income. Once passive income exceeds $150,000, the business would be fully subject to the corporate tax rate. According to the CFIB, these changes effectively meant that some small-business owners will now face tens of thousands of dollars in tax increases.
The Government’s Position
Bill Morneau, the federal Finance Minister, has said that the changes are intended to prevent high-income Canadians from using corporations to pay less taxes. The changes will also create new revenue.
In November 2017, the Parliamentary Budget Officer (PBO) estimated that the passive income changes as they were proposed at the time would raise up to $1 billion in new revenue annually in the first two years following the changes, followed by $6 billion annually after 20 years. The PBO also noted that the changes would affect only about 2.5% of incorporated small businesses.
The PBO has not updated its revenue forecasts following the version of the bill that was passed this month.
Conservative finance critic Pierre Poilievre noted that despite the government’s decision to “move forward with a significantly watered-down version of the original proposals” the Conservatives “…are putting forward the voices of 45,000 small-business owners who say they are not putting their guard down”.
Earlier this year, more than 12,000 Canadians signed a different online petition asking Morneau to ensure that the country’s largest corporations pay a fair share of taxes. The petition had three goals: raise corporate taxes, shut down loopholes and impose a special levy on banks.
If you are a business owner and have questions about how the new Bill and its changes will affect your current tax plan contact Feigenbaum Law. We are leaders in the field of tax law and assist our clients in making informed choices that lower their overall tax burden, ensure tax compliance and avoid penalties that can amount to tens of thousands of dollars. We offer our clients confidence knowing that they have a highly skilled team working to manage tax issues. Contact us to learn more about how we can help or call us at (905) 695-1269 or toll-free at (877) 275-4792.