October 16, 2017 Proposed Changes to Small Business Taxes

16 October, 2017

Have just skimmed through the press releases from the Minister of Finance regarding the ‘tweaks’ to the taxation of small businesses announced on October 16, 2017 and it looks like a classic ‘bait and switch’. The government seemingly hopes small business people focus on the token reduction to the small business active income tax rate.  Never mind that the proposals that everyone has gotten so angry about largely remain intact.
The defects of the proposals from July 18th are still by and large in play, so clearly the consultation period was not taken seriously.  Let’s face it, given that 21,000 submissions were received and the consultation just ended a mere 14 days ago I find it physically impossible the government has read all submissions, organized, analyzed and then responded to them coherently.
The good news that I saw was more of a nice hint or two about what to expect.  We can expect there to be an easing on making sure the access to the Life Time Capital Gains exemption will survive.  Additionally, there is to be an expansion of what the government will consider to be a reasonable contribution by family members when determining whether the new punitive Tax on Split Income (TOSI) rules will be applied.
Yes, the reduction to the small business corporate tax rate by 0.5% starting on January 1, 2018 and then a further 1% a year later will get a large amount of positive press.  But let’s put this into perspective.  At most this will generate corporate tax savings of $2,500 and then in 2019 an additional $5,000 of corporate taxes saved.  However, the money still must eventually come out and ultimately individual taxes gets paid on that money – so no real tax savings, more of a tax deferral really.  I fail to see how the savings plan (i.e. post secondary and/or retirement) being totally, and retroactively[1], destroyed is compensated by these minor tax rate changes that were promised by the previous federal government.
A lot more analysis needs to be, and will be, done on the combined proposals, but I for one am not encouraged that anything close to acceptable progress has been made to truly try and make these tax changes for small business anything close to “fair”.
[1] It is retroactive as the money was saved and likely ear marked for retirement or post secondary financing, if not required internally first, but now will be taxed at 54% in many/most cases, using the Ontario combined rates.

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