Changes to Small Business Taxes in Canada

The federal government recently released proposals to increase taxes on small businesses. They will impact tax-planning strategies frequently used by incorporated businesses. Specifically, the changes will restrict a corporation’s ability to income sprinkle with family members, curtail the use of holding companies to defer tax on monies saved for future expansion and retirement planning, and increase the tax otherwise payable when a business is sold. While many consider this to be an issue that only affects entrepreneurs, that is not the case. It will impact all of us.

The changes are being promoted under the guise of ensuring fairness by taxing the “wealthy.” This is misguided as most small-business owners are middle-class – the very group the government claims to be helping. The tax act was designed to encourage small-business ownership (among other things), and it is true that owners of small businesses benefit from tax incentives not available to employees. However, employees have access to employer-paid CPP, EI, medical benefits, vacation time, sick time, and pensions. Small-business owners do not receive these benefits, yet they do bear the risk of business failure – often with their personal assets at stake. The tax benefits available to small businesses are designed to offset the added costs and risks of business ownership. Increased taxes for business owners will ultimately result in less available cash for the business. This will force small-business owners to raise their fees for products and services and may result in lost jobs. It will even impact our health-care system. Doctors, who often have large medical-school debts to repay, cannot raise their rates to compensate for increased taxes because the rates are mandated by the government. The choice for doctors is clear: move out of Canada. While other countries are encouraging doctors to take up practice, ours is discouraging them by raising taxes. If our doctor shortage is grave now, be prepared for it to worsen. Small businesses drive Canada’s economy and employ its people. This is especially true in Atlantic Canada. The tax changes are not just about small businesses; they will impact our economy, jobs, and health-care system.

Bluenose Accounting works with a wide range of clients – from the individual to the incorporated professional – and we feel that it is important to consider the implications of these changes for each and every one of our clients. What follows is, first, a general discussion on how the changes could affect the public and the economy. I will then delve into the specifics of the rule changes, which are more relevant to those who own a small business or are otherwise incorporated.

Contact your MP and ask him/her to reconsider these proposals or to at least extend the consultation process to find a better solution. Submissions can be sent to no later than October 2, 2017.

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Filed in: Advice Articles



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