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Canada Legislates For Tax, Benefit Reforms

by Mike Godfrey, Tax-News.com, Washington

25 October 2017


The Canadian Government is pressing ahead with plans to cut the small business tax rate.

The Government has tabled a Notice of Ways and Means Motion in the House of Commons that proposes phased reductions in the small business tax rate. Under the changes, the rate will fall from 10.5 percent to 10 percent from January 1, 2018. On January 1, 2019, the rate will fall to nine percent.

The Government estimates that these rate cuts will save SMEs up to CAD7,500 (USD5,911) in federal corporate tax per year.

The rate reduction was announced last week alongside a number of amendments to the Government's package of reforms to the tax planning rules used by private corporations. The proposals had drawn criticism from small businesses, with claims that it was SMEs that would be hardest hit, rather than the high-income individual taxpayers the Government said it was targeting.

In his speech to Parliament on the Fall Economic Statement, Finance Minister Bill Morneau said that before he could lower taxes for small businesses, he needed to be sure that the benefits would flow to them, "rather than giving tax advantages to the wealthiest."

Morneau said that the Government was "moving to fix a system that currently allows someone making hundreds of thousands of dollars a year to pay a lower tax rate than someone making far less, just because they are incorporated and have children over 18."

He explained: "For incorporated professionals and business owners, we will preserve the flexibility to save up for a rainy day, for parental leave, or for retirement, while not allowing individuals to have unlimited tax-advantaged savings accounts over and above what is available to everyone else. And we will work with farmers, fishers, and business owners to make sure they can pass down the family business to the next generation."

The Fall Economic Statement set out that the Government will:

  • Move forward with plans to restrict income sprinkling by private corporations, effective for the 2018 and subsequent taxation years, with revised draft legislative proposals to be released later this year; and
  • Include in Budget 2018 detailed proposals for limiting the tax benefits of investing passively in private corporations, with an annual threshold of CAD50,000 of passive income for future, go-forward investments.

The Statement also confirmed that, in light of the feedback it received during the consultation period, the Government will not move forward with its plans to either limit access to the Lifetime Capital Gains Exemption, or to prevent the conversion of the surplus income of a private corporation into capital gains.

The Notice of Ways and Means Motion stipulated that, as regards tax credits and benefits, the Government will:

  • Make annual cost of living increases to the Canada Child Benefit (CCB) starting in July 2018 – two years ahead of schedule; and
  • Enhance the Working Income Tax Benefit (WITB) by an additional CAD500m a year, starting in 2019, in addition to the increase of about CAD250m annually that will come into effect in that year as part of the enhancement of the Canada Pension Plan (CPP).

TAGS: individuals | compliance | Capital Gains | tax | investment | small business | business | tax compliance | tax incentives | retirement | corporation tax | tax thresholds | tax credits | small and medium-sized enterprises (SME) | professionals | tax planning | tax rates | Canada | tax reform

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