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Canada’s Small Business Tax Changes from the New Federal Budget

Morley Surcon By Morley Surcon,
Vice-President, Western Canada at Eagle

Canada's Small Business Tax Changes from the New Federal BudgetI thought I would write this blog entry as a follow up to another that I’d written a number of weeks ago entitled, “Canada’s Proposed Tax Changes for Small Business” where I encouraged the contracting community to take notice, get educated and have their voices heard.  With the presentation of the new Federal Budget, these are no longer “proposed changes” but are, in fact, the new reality of the corporate tax system and its policies.

What was presented was a good news/bad news story for the small business owner. Finance Minister Bill Morneau was forced to consider the backlash from the policy changes that he and his government proposed several months ago, resulting in a somewhat softened stance when it came to Small Business Tax policy.  The final policy, presented along with the rest of the Federal Budget, took some of the sharp edges off their plans for reform, but it will still have its impact felt by the small business owner.

The following are some of the take-aways from the new budget as it pertains to Small Business Taxes and their implementation:

  • Income splitting has now been addressed and curtailed
  • New passive income taxation rules won’t have much of an effect on newer businesses or very small businesses starting out; but will impact older, better established and/or highly successful businesses whose passive earnings are already built up and substantial. Any company earning $50,000 or less in passive income will qualify for the Small Business Tax Rate but, once more passive earnings are reported, the tax rate will gradually increase until the point where passive income equals $150,000 (or more) and at that point passive income will be taxed at the General Corporate Tax Rate levels.
  • A concern that is getting a lot of attention is the widening gap between Canada and the USA’s corporate and personal tax environments. With the new tax reforms south of the border, there is a more significant tax advantage in doing business as a US-based entity; and this provides their companies with economic advantages over Canadian businesses. Investment becomes more difficult to attract which impacts Canadian companies’ ability to innovate and build. Moreover, there is a growing fear that mobile professionals such as doctors, scientists and technology professionals may choose to relocate state-side to take advantage of higher wages (paid in US$) and lower taxes.

There’s quite obviously a lot more to it than the above three points.  You can read more about it by following the links below:

If you have ideas, comments or opinions about the new Federal Budget that you would like to share with our readership, please leave a comment below!

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