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Liberals trim small-business tax rate to stanch political bleeding
For more details on Finance Minister Bill Morneau’s taxation plans,
The federal Liberal government says it will lower the small business tax rate to 10 per cent in January and to nine per cent in 2019, the start of a weeklong effort to stanch the bleeding from a self-inflicted political wound.
Prime Minister Justin Trudeau also says the government won’t be changing the lifetime capital gains rule, which allows business owners to convert regular income of a corporation into capital gains, which are taxed at a lower rate.
The small business tax rate is currently at 10.5 per cent and applies to the first $500,000 of active corporate income, and the government says lowering the rate will provide entrepreneurs with up to an additional $7,500 per year.
“This tax cut will support Canada’s small businesses so that they can keep more of their hard-earned money, money that they can invest back into their businesses, their employees and their communities,” Trudeau told a news conference in Stouffville, Ont.
“When we made the commitment back in 2015 to lower small business taxes, we were very clear about one thing: we would only make this change after we took a look at the tax system. That’s what these consultations of these past months were all about.”
Combined, the government estimates the tax reductions will reduce Ottawa’s revenues by about $2.9 billion over five years.
The prime minister also said the government would simplify one of its more contentious proposals, which would limit the ability of business owners to lower their personal income taxes by sprinkling their income to family members who do not contribute to their companies.
Trudeau campaigned in 2015 on a promise to reduce the small business tax rate to nine per cent from 11 per cent over three years - but he announced in Budget 2016 he would freeze the rate at 10.5 per cent, cancelling in the process a legislated reduction to nine per cent instituted by the previous Conservative government.
Faced with vocal opposition to tax proposals the Liberal government is now reviving the nine per cent promise.
In recent weeks, doctors, lawyers, accountants, shop owners, farmers, premiers and even some Liberal backbenchers denounced the reforms, contending they’d hurt the very middle class Trudeau claims to be trying to help.
The changes are aimed at more clearly targeting the reforms at wealthy individuals who’ve used incorporation of small businesses to gain what the government maintains is an unfair tax advantage.