Federal tax changes add new threats for independent business

The tax burden is one of the biggest challenges your business faces, and it could get worse with new changes proposed by the federal government.

The lower tax rate on the first $500,000 in corporate income has been vital to the success of many small firms—but some big business groups, academics and government officials have called on the government to limit access to or completely eliminate the small business rate. In fact, despite an election pledge to cut the rate from 10.5% to 9%, the government hasn’t followed through. What’s more, they have proposed changes to the tax code that could make things even harder for owners.

While these changes are intended to make sure the wealthiest Canadians pay their fair share of taxes, the government appears to forget that the vast majority of independent business owners aren’t the 1%.

The latest set of proposals, announced in July 2017, seek to eliminate or restrict some ways that business owners can save on taxes, including:

- Sharing income with family members;

- Saving passive investment income in a corporation; and

- Converting a corporation’s income into capital gains.

These measures are currently legal and are often used by many different independent businesses to reinvest in the business, ensure the stability of the firm in leaner times or save for the retirement of the business owners.

Companies will want to prepare for this change, but until further specifics are released, detailed advice would be premature. What business owners can do is speak to their local MP to explain how these rules may negatively affect them.