Focus On
NEW In-House Counsel | Insurance | Intellectual Property | Immigration | Natural Resources | Real Estate | Tax

Feds announce tax break for small businesses

Monday, October 16, 2017 @ 3:38 PM | By Carolyn Gruske


Starting in January 2018, Canadian small business owners can expect to see their federal tax bill drop.

Prime Minister Justin Trudeau, Finance Minister Bill Morneau and Small Business and Tourism Minister Bardish Chagger made that announcement today in Markham, Ont.

The revised tax plan will see the small business tax rate drop to 10 per cent starting on Jan. 1, 2018. The following year, the rate will go down to nine per cent. This means that the combined federal-provincial-territorial average tax rate for small business would be lowered to 12.9 per cent from 14.4 per cent, which the federal government said is the lowest among the G7 countries and fourth lowest among Organisation for Economic Co-operation and Development (OECD) countries.

The government also 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 who do not contribute to the business. It also promised to shelve a proposed measure that was designed to limit access to the lifetime capital gains exemption.

Recently, the government earned criticism for changes in the way small businesses were to be taxed. In an effort to reduce income sprinkling and prevent high-earners from using private corporations to pay a lower tax rate than a typical working Canadian, the government took steps to close some legal tax loopholes. In making its announcement, the government insisted that these tax reductions won't allow Canadian-controlled private corporation (CCPC) status to be used to reduce personal income tax obligations for high-income earners rather than supporting small businesses. The government said that there is only an estimated total of 50,000 family-owned private businesses that are income sprinkling income — a figure that represents around three per cent of CCPCs.

"We made a promise to middle class Canadians that we would lower their taxes and make sure everyone pays their fair share. We will be taking the next step towards greater tax fairness by addressing tax planning strategies that benefit the wealthiest, while fulfilling our commitment to lower the small business tax rate to nine per cent. We will make sure this small business rate is effective in encouraging businesses to grow, buy new equipment and hire more workers," said Morneau.

"This is the next step in our government's work to build a stronger middle class, and to help those working hard to join it. The prime minister was very clear in my mandate letter that, as our government lowers the small business tax rate, we must ensure that this lower rate supports hard-working small businesses and does not provide unfair advantages for high-income earners. Throughout the consultation period, we heard from many Canadians who agreed with the principle that we need a fairer tax system. Today`s announcement is good news for our economy, for small businesses, and for middle class Canadians," said Chagger.