Small Business Tax Changes and What They Mean for Dealers
It is clear that the criticism levied on Minister Morneau and the liberal government in regards to proposed small business tax changes made an impact. Over the past several weeks, numerous announcements have been made regarding changes to the original proposals. Given the overwhelming amount of attention paid to these changes by the media and stakeholder groups, feedback seems to have been taken into consideration by the Government which is good news for dealers.
The most noteworthy change announced was that of the small business tax rate going down from 10.5% to 9%, a decrease that will surely be welcomed by the small and medium business owners that make up the majority of Canada’s retail auto industry, despite the grind that limits or eliminates access to the small business rate for many dealers across Canada.
Also of note are the changes that were made in regards to income sprinkling, passive income earned within a corporation, and the conversion of business income to capital gains for tax purposes, all elements that were included during the initial consultation process introduced over the summer. Capital gains changes have been sidelined by the government, and in terms of passive income, the higher tax rate will now only apply to passive income in excess of $50,000 per year, equivalent to a 5% yield on $1 million in corporate savings. Finally, the government has set firm guidelines on income sprinkling in efforts to ensure that only family members who play an active role in the business will be able to earn income from it.
Canada’s auto dealers were an important component of the vocal public response to the proposed changes when they were initially announced this past summer. In addition to meetings taking place with Senior Policy Advisors in Minister Morneau’s office and with MPs and Senators on Parliament Hill, an official response was submitted to the Department of Finance’s consultations, and hundreds of letters were sent by auto dealers across the country to their personal MP to discuss how proposed changes would impact small business owners, particularly those in the retail automotive sector.
Overall, the recent changes highlight the fact that the Government was receptive to the concerns voiced by Canada’s small business sector, and the retail auto industry will continue to work to ensure that any policy shifts in regards to small business taxes receive the appropriate response. If there are any questions regarding these new changes, please feel free to contact Michael Hatch, CADA’s Chief Economist, at firstname.lastname@example.org.