How Federal Small Business Tax Changes Affect Canadian Business Owners
A lot of things have changed lately.
The weather was awesome – now it’s rainy. Dogs and kids were running free – now they are in patterned raincoats. And the federal government had so-called loopholes for small biz owners. Now the rules may be changing.
What are the proposed tax changes?
Tax changes are being put in place for small businesses that are incorporated.
In July, Finance Minister Bill Morneau announced the plan to close three so-called loopholes which the government says have allowed high-earning business owners to avoid higher tax rates.
This will affect “income sprinkling” which allows a business owner to split his or her income among family members, whether they are working for the business or not (and instead are spending time buying patterned dog raincoats on Canadian Etsy.)
CBC news also states: “The government is also proposing limits on the use of private corporations as a way to gain tax advantages when making passive investments, and limiting the conversion of a corporation’s regular income into capital gains that are typically taxed at a lower rate.”
Who will the tax changes affect the most?
The changes will target small businesses owners earning $150,000 or more a year. Or those who have money remaining after contributing the annual maximum to RRSPs and TFSAs.
Although the changes will affect any high earning incorporated business owner, doctors feel they will be affected the most. Other incorporated businesses can raise their fees, however as doctors are part of the public healthcare system, they can’t and will suffer more losses than folks in other careers.
On the other hand, supporters of the tax changes point out that about a third of doctors in Canada remain unincorporated, and even for the incorporated ones, the benefits of incorporating go disproportionately to the wealthiest who have more income to shelter.
Why are the tax changes being proposed?
Morneau and Prime Minster Justin Trudeau say the tax changes are about making the system fair and that owners of private corporations should pay the same tax on their income as other taxpayers.
They state if the changes go through, that the provincial and territorial governments should see an increase in revenues which can be invested in strengthening their publicly-funded health services.
What are your thoughts about the small business tax changes? Are you worried about how they will affect you?
Let’s chat about how we can help you if the small business tax changes occur. Contact us today for a free consult.