The Dufferin Board of Trade and Canadian Chamber of Commerce welcome the government’s plans to revise its proposed tax reforms and to reduce the small business tax rate as a result of the comments and concerns expressed through the #ProtectGrowth campaign and in consultations.
During the week of October 16-20, which coincided with Small Business Week, the Federal Government rolled out revisions to the proposed tax reforms. Although there are still many details that have yet to be confirmed the government has made the following announcements:
The Small Business Corporate Tax Rate will be reduced – The government will reduce the federal small business tax rate from its current level of 10.5% to 10% as of January 1, 2018 and 9% as of January 1, 2019. This measure reinstates
the gradual rate reduction to 9% announced by the previous government but halted in Budget 2016.
The Dufferin Board of Trade welcomes this change.
Higher taxes on Ordinary Dividends – In conjunction with the small business rate reduction, the personal tax rate applied to ordinary (non-eligible) dividends will increase.
This change could result in an overall tax increase for some small business owners, which for some might exceed the savings
associated with a reduction in the small business tax rate.There will be no grandfathering of lower personal dividend tax rates on distributions of these accumulated retained earnings. The Canadian Chamber has proposed that a grandfathering mechanism be introduced.
The Federal Government will introduce a $50,000 threshold on passive income in a year; the system will now allow $50,000 of passive investment income annually to be sheltered before the higher tax rate is imposed.
- The $50,000 threshold is inadequate for small businesses that are saving in order
to make larger investments in innovations or business growth;
- The threshold is too small to provide business owners with long-term earnings
- The government should not proceed with its passive income rules until a full
economic impact assessment has been carried out and an approach has been
developed that can ensure there will be no unintended negative consequences
to business investment.
The Government will not be moving forward with measures relating to the conversion of income into capital gains.
The Dufferin Board of Trade welcomes this revision.
The Government will not be moving forward with proposed measures to limit access to the Lifetime Capital Gains
The Dufferin Board of Trade Chamber welcomes this revision.
The Government intends to simplify the proposal to limit the ability of owners of private corporations to lower their personal income taxes by sprinkling their income to family members.
The Dufferin Board of Trade and the Canadian chamber network remains concerned that the changes when they are announced will not take into consideration all of the ways that family members contribute to a small business and that the reasonableness test that will be applied by CRA will still be intrusive and complex.
We are calling for the government to:
- Announce its simplified rules as soon as possible and allow ample time for input
- Consider at a minimum an exemption from the rules for spouses; and,
- Postpone the implementation of the changes until January 1, 2019 at the very
The revised proposals announced by Finance Minister Bill Morneau are a response to concerns expressed by the entire Canadian Chamber network and its members including the Dufferin Board of Trade.
The Canadian chamber network continues to ask the Government to consider a comprehensive review of the Canadian tax system with a view toward fairness and simplification for all taxpayers, and increasing competitiveness for all businesses. Chambers are still very concerned about the potential negative impacts the government’s small business tax changes are likely to have on small business investment and growth. Tax changes should be postponed until their full economic impacts can be taken into account.