Atlantic Canada’s Leading Resource for Women Entrepreneurs Since 1992, located at the RBC Centre for Women in Business, MSVU.

Message from Tanya Priske, Executive Director

October 2017

Small Business Tax Changes: Somewhere Between Really Bad & Really, Really Brutal   

Tanya Priske

In mid-July, the federal government launched a 75-day consultation period, which ended October 2nd, to allow people time to digest the complex proposals, and provide feedback that could lead to adjustments.

The government’s plan to close loopholes that give wealthy, small-business owners an unfair tax advantage over other Canadians is Trudeau’s commitment to fairness.

"It’s going to be ugly."

That's a direct quote from my accountant, after I asked him about the impact the proposed federal tax changes will have on our incorporated businesses. 

He believes the proposed changes will impact 80-90% of small incorporated businesses in Canada, which will further impact everyone else, as affected businesses may increase their prices to make up for the loss they will incur.

According to the CFIB (Canadian Federation of Independent Business) website, the federal government is considering the most significant tax changes in decades, with the potential to severely harm Canadian small businesses. 

At the time of writing this, the petition against these changes was still open:

Our valued team member, Laurie Sinclair, also concurs.  She took time last week to share information she gathered during a recent PWC (Price Waterhouse Cooper) webinar on the proposed small business tax changes. 

Some of those concerns she shared included:

• 70%-plus of jobs created in Canada come from SMEs or privately held small businesses

• It may cost small incorporated business owners up to 30% more in taxes

• It may cost you, the small business owner,  an additional professional fee expense as we try to figure out how it will impact each of us individually

The objective of CRA is to create integration among all tax payers, and thus eliminate any tax breaks or advantages to business owners. CRA’s perspective is that the current tax rules have allowed for methods to be used by incorporated businesses to reduce the percent of tax paid. Their defense of the proposed changes is that it creates a more equitable integration of taxes payable for all Canadians. 

Their reply to the question of allowing incorporated small business owners tax advantages to compensate them for taking the risks of starting and growing a business is that the small business tax credit accomplishes this.  The small business tax credit federally allows for incorporated small businesses to claim a small business tax credit of 17.5% which reduces dollar for dollar taxes payable on the first $500,000 of taxable income.  This is a potential $87,500 ($500,000x17.5%) reduction in taxes payable.

If the federal government eliminates any tax that helps small incorporated businesses and minimize the risk they take in starting and growing a business, paying overhead and creating employment by paying corporate tax instead of personal tax, according to our progressive tax system, how does this effect the incentive to start a business or a professional practice?

Some key areas of concern are for incorporated small businesses:

•  Transferring business ownership, such as to family members

•  Restricting the use of income splitting with family members

• Using trusts to manage lower taxes payable

•  Taxes on the death of a business owner

•  Non-arms-length transfer of shares

•  Business income retained in the business to save for future growth initiatives or retirement will now be taxed significantly higher

Long story short: The government wishes to eliminate any incentives  to hold passive investments inside an incorporated company. These investments are currently taxed at the small business rate, which is lower than the personal income rate because they are used for business purposes.  But the government says this is unfair to people whose investments are taxed at the personal rate.

These rules will likely discourage family members going into business together, and will cost business owners significantly more taxes.  Family members providing seed capital for a new business will now be affected by the family member facing limitations on any return they may earn on this.

Please be aware: The new rules would apply starting in the 2018 tax year.

I'm with the CFIB: This government doesn’t understand how higher taxes on our investments as small incorporated business owners will harm our ability to invest in our business, and save for the future. 

JUST SAY NO!!!!! Click the link above to sign the CFIB petition, call your local Member of Parliament, and the office of federal Finance Minister Bill Morneau.  Contact Nova Scotia Finance Minister Karen Casey and let our provincial leaders know that you're concerned about the future of small business in our region. 

We can't simply let this go, so let's make some noise, and ask our elected representatives to step up and speak out on behalf of all small business owners.

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