Tag: #ProtectGrowth

#ProtectGrowth : Small Business Tax Changes Update

On October 16, Finance Minister Bill Morneau announced the federal government’s response to the more than 21,000 submissions it received during the previous three months with regard to the government’s proposed changes to the tax treatment of small business.

The key provisions contained in his announcement and the Canadian Chamber’s messaging with regard to each are summarized below.

In addition to responding to the government’s new proposed tax changes, the Canadian Chamber Network has called on the government to undertake a comprehensive review of
the tax system recommending that it establish a Royal Commission to do so. In light of mounting regulatory compliance costs imposed by all levels of government, proposed carbon taxes, and the prospect of US tax reform, the Chamber will launch its own competitiveness assessment of Canada’s business tax system in 2018. The findings of our review will help to shape the priorities for tax

Dates to look out for:
  • December 15 – The Senate Finance Committee will release its report on the Small Business Tax changes based on the cross-country consultations it undertook during the fall in which many Chambers took an active role.
  • Sometime before Christmas (our bet is just before Christmas) – The government’s new rules on income sprinkling need to be tabled if the government is to meet its January 1 date for implementation.
  • March – Budget 2018 will most likely contain draft legislation on passive investment.

Key Messages to MPs

1. Chambers are still very concerned about the potential negative impacts the government’s small business tax changes are likely to have on small business investment and growth.
2. Tax changes should be postponed until their full economic impacts can be taken into account.
3. The government must urgently address the broader issue of the competitiveness of Canada’s tax system.
4. The government should establish a Royal Commission to undertake a comprehensive review of the tax system.

Changes announced by Finance Minister Morneau

1. The Small Business Corporate Tax Rate will be reduced
The government will reduce the federal small business tax rate from its current level of 10.5% to 10% as of January 1, 2018 and 9% as of January 1, 2019. This measure reinstates the gradual rate reduction to 9% announced by the previous government but halted in Budget 2016. The tax rate reduction was included in a Notice of Ways and Means Motion tabled as part of the government’s Economic Update on October 24. This reduction will save companies earning $500,000 in income eligible for the small business deduction $2,500 in 2018 and $7,500 annually from 2019 on.
The Canadian Chamber Network  has welcomed this move.

2. Higher taxes on Ordinary Dividends
In conjunction with the small business rate reduction, the personal tax rate applied to ordinary (non-eligible) dividends will increase. The purpose is to maintain the integrative nature of the personal and corporate tax systems, ensuring that the aggregate level of tax paid on dividends will remain the same regardless of whether income is earned as an individual or through a corporation. However, this change could result in an overall tax increase for some small business owners, which for some might exceed the savings associated with a reduction in the small business tax rate. Personal tax rates will increase on dividend distributions from earnings that were taxed at a higher rate (like distributions of earnings taxed at a higher small business or manufacturing and processing rate or future distributions of passive investment income). There will be no grandfathering of lower personal dividend tax rates on distributions of these accumulated retained earnings.
The Chamber Network has proposed that a grandfathering mechanism be introduced.

3. Rules related to “Income Sprinkling” will be simplified
Widespread and serious concerns were raised during the consultation period with respect to the complex rules the government was proposing to introduce aimed at restricting the payment of income to adult family members unless the amounts were determined to be reasonable. The government also proposed that it would treat some capital gains as ordinary dividends.  The government received thousands of submissions detailing concerns about how these proposed rules could result in nearly doubling the tax rate on inter-generational family business transitions or other legitimate business transfers to related parties. The complexity and uncertainty of the proposed changes was also an issue of common concern, as was the likelihood of the proposed measures unleashing an army of CRA tax auditors working on different interpretations of what reasonableness actually means.

In response to the consultations, the government confirmed that the measures related to income sprinkling would be simplified in order to provide greater certainty for family members who contribute to a family business. No further details have been provided
since October 16.

There are still many uncertainties about these proposals. What does simplification and clarification mean? What does a reasonable contribution to a business mean? Will the conversion of capital gains to ordinary dividends remain in the simplified legislation? And, when will the simplified draft legislation be released? (The previous version was to come into effect January 1, 2018. The government will need to table its simplified version before then if the effective date is to remain unchanged – Look out for the rule changes to be announced just before Christmas.)

The Chamber Network remains concerned that the changes when they are announced will not take into consideration all of the ways that family members contribute to a small business and that the reasonableness test that will be applied by CRA will still be intrusive and complex.
We have called for the government to:
  • Announce its simplified rules as soon as possible and allow ample time for input from business;
  • Consider at a minimum an exemption from the rules for spouses; and,
  • Postpone the implementation of the changes until January 1, 2019 at the very least.
4. Access to the Lifetime Capital Gains Exemption will not be changed
The Finance Minister announced that the government will not proceed with its proposal to restrict access for certain shareholders to the Lifetime Capital Gains Exemption (LCGE). The Chamber Network welcomes this change.

5. Rules governing the Conversion of Capital Gains into Dividends will not be changed
The Finance Minister also announced that the government will not proceed with draft legislation tabled last July that would convert capital gains into taxable dividends. The Chamber Network welcomes this change.

6. The government will work to make it easier and less costly to transfer business to the next generation.
The Chamber welcomes the government’s willingness to improve the tax treatment of intergenerational transfers and looks forward to working with the government to this end.

7. Proposals for the tax treatment of Passive Income will be revised.
The government intends to proceed with proposals to increase tax on corporate passive investments funded from after-tax business earnings, effectively double taxing the eventual distribution of passive investment earnings. However, the government now proposes that the new tax increases will only apply to passive income in excess of an annual threshold of $50,000 and will be applied only on a go-forward basis. It is expected that the draft legislation will be tabled along with the federal 2018 budget.

There are many concerns and uncertainties that still surround this proposal. Such as: Will the threshold apply to individual companies or to groups of companies? What is being grandfathered? Investment assets or retained earnings? Current working capital or future liquid assets from the disposal of other assets? How long will the grandfathering be permitted? Are investments in other companies considered passive investments? The threshold will be insufficient for many small businesses saving to make future investments. There are also serious concerns that the taxation of passive investments will be a disincentive to venture or angel capital.

The Chamber’s position with respect to the government’s new proposals to tax passive income is that:
  • The $50,000 threshold is inadequate for small businesses that are saving in order to make larger investments in innovations or business growth;
  • The threshold is too small to provide business owners with long-term earnings security;
  • The government should not proceed with its passive income rules until a full economic impact assessment has been carried out and an approach has been developed that can ensure there will be no unintended negative consequences to business investment.

Tax Wins for Small Business!

Minister of Finance Bill Morneau announced a series of revisions to the federal government’s proposed corporate tax changes as well as a reduction to the small business tax rate. This announcement is a significant win for the business community and is a result of the hard work of business owners and chambers from across the country. The fight for tax fairness and our #protectgrowth campaign is not over yet, but keep reading to see what has been accomplished so far.

Small business tax rate reduction:
The small business tax rate will be reduced from 10.5% to 9% by 2019. This was originally part of the Liberal campaign platform, but was postponed indefinitely in Budget 2016. We are pleased to see this planned reduction restored.

Lifetime Capital Gains Exemption (LCGE):
The government had planned to limit access to the LCGE as one of their three major changes to corporate taxation. This would have hurt family businesses by punishing intergenerational transfers. The government has cancelled this proposal and now says there will be no changes to the LCGE. The government has also indicated that it will ensure that the proposed tax reforms do not impede the intergenerational transfer of businesses. They have not yet provided any detail on this yet, but we will be monitoring the issue closely.

Income Splitting:
The government proposed onerous restrictions on how much family members could be paid. They said anything beyond a “reasonable” salary would be taxed at a much higher rate. The government has softened its approach, indicating that the tax reforms will only impact family members that make no “meaningful contribution” to a business. The government has also said it will simplify restrictions on income splitting. By excluding family members that make “meaningful contributions” to a business from this proposal, the government has taken a step in the right direction, but it is still not clear what exactly a “meaningful contribution” is. We are concerned that government still does not recognize the diverse contributions that family members make to a business.

Investment Income:
The government is still moving forward on rules to discourage passive investment income, but they are setting a threshold that will allow $50,000 in income per year to be exempted. That means that $1 million held inside a corporation could earn 5% ($50,000) without being subjected to the new rules. We are still calling for government to completely cancel its proposed restrictions on passive investment income, but this ‘threshold’ is an improvement from the original proposal.

What’s Next?
Although the federal government has taken some steps toward tax fairness through its reduction of the small business tax rate and revising its corporate tax proposals, there is more work to be done. The details of the government’s new proposals are still to be seen and the government has not yet conducted fulsome consultations or a comprehensive review of the tax code. That’s why we are calling for a Royal Commission to conduct a full and independent review of the tax system.

We urge you to continue to make your voice heard and contact your MP. Tell them that these revisions are a step in the right direction, but that Canada needs a Royal Commission. Make sure they hear your concerns so that Burlington can remain a fair place to do business. You can reach MP John Oliver here and MP Pam Damoff here.

Oakville Chamber and Canadian Chamber welcome revised tax reforms and lower small business tax rate, but remain concerned  

The Oakville Chamber of Commerce and Canadian Chamber of Commerce welcome the government’s plans to revise its proposed tax reforms and to reduce the small business tax rate as a result of the comments and concerns expressed through the national #ProtectGrowth campaign and in consultations.

“Oakville Chamber members are extremely concerned with the proposed changes by the federal government.  On behalf of our members the Chamber met with our local MPs Pam Damoff, MP Oakville North Burlington and John Oliver, MP Oakville.  We trust that our voices have been heard and that our local representatives will continue to advocate on behalf of their community on these critical changes that will impact Oakville businesses and the economy” said John Sawyer, President, Oakville Chamber of Commerce. 

As Canadians celebrate Small Business Week, Chamber representatives congratulate the thousands of businesspeople who joined the mobilization and made their voices heard on this important issue affecting Canadian workers and employers.

The Oakville Chamber also noted the Minister’s call for further input from Canadian businesses, and intends to continue providing a voice to ensure the tax system is simpler and less of a burden on Canada’s competitiveness.

“It is always more productive when government and business work together. We can only hope the government will listen as we provide advice on those areas where more remains to be done, and that they will propose concrete data to back up their claims. The Canadian Chamber will be working with the Oakville Chamber and other Chambers across the country for suggestions on reforms that can improve the competitiveness of Canada’s tax system. Lowering the small business tax rate is one such measure, but there is still much room for improvement,” Mr. Beatty said.  “We must ensure that Canada, and with it Oakville, remain attractive places to do business. Although there is a great deal of work to be done, today’s announcement is a positive first step, but we expect more and we will be vigilant on the next steps,” he concluded.

Rethink Tax Changes | #ProtectGrowth

Rethink Tax Changes #ProtectGrowthThe government’s proposed tax changes will affect all private business owners

The government has proposed the most significant tax changes we’ve seen in 45 years. These tax changes will affect all private business owners, regardless of their level of income, size of business or conformity with fiscal rules.

Our asks

  • We want the government to rethink its proposed tax changes to protect the growth of small businesses across Canada.
  • We want the government to launch meaningful consultations with the business community to review tax policy without unfairly targeting independent businesses.
  • We want the government to consider a comprehensive review of the Canadian tax system with a view towards fairness and simplification for all taxpayers and increasing the competitiveness of all businesses.

Our submission

The Canadian Chamber of Commerce has submitted their policy submission to Finance Canada on the proposed tax changes. It outlines the problems and offers solutions.
Read the submission. 

Have your say

While the government’s consultation period ended on October 2, you still need to voice your concerns.  Call on your MP to ensure no harm is done to small businesses across Canada. 

Click here to write your MP today. When prompted for a password, please enter chamber2017.

Click here to sign our petition. The petition will be sent to ministers Morneau, Chagger, Bains and Monsef.

Please consider adding your voice by shooting a video and sharing it via protectgrowth@chamber.ca. Videos should tell the story of how proposed changes will impact their business. Watch a sample.  

Learn more.