As you may be aware, on Tuesday, July 18th the Minister of Finance, The Honourable Bill Morneau, announced a set of proposals aimed at reforming the tax planning options available for private corporations. Since the changes were released I have heard from a number of incorporated professionals, and small and medium sized business owners in Oakville and Burlington. I have also been following how the proposed changes have been covered in the media and discussed on social media. The proposed changes will bring reform to rules that have been unaltered since the 1970s and people rightly have a lot of questions about how these changes will affect their businesses. However, while these proposed changes are complex, I believe that there is misinformation that has been circulating and I hope that the explanation below will help to set the record straight.
The first thing I would encourage you to do, if you are unsure how these changes will affect you or your business, is to review the consultation document released by the Department of Finance and discuss what these changes will mean for your business with your accountant. I have heard from small businesses who advised me that once they did this, they discovered that the proposed changes do not have any impact on them at all.
The document compiled by the Department lays out the current tax planning strategies that corporations are currently using, some problematic elements found in these current strategies and the rationale for why new legislative measures are needed.
You can read the document in full by clicking on this link; https://www.fin.gc.ca/activty/consult/tppc-pfsp-eng.pdf.
Once you have reviewed the consultation document I encourage you to send any constructive and actionable feedback you might have to the email firstname.lastname@example.org. The consultation will be open until October 2nd. , In my most recent conversation with Minister Morneau, we discussed the importance of consulting Canadians on these proposals. He has assured me that any legislative changes will ensure that small businesses are able to continue doing what they do best: grow their business, create jobs and support their communities.
Within the newly proposed rules corporations will continue to be able to take advantage of the lower corporate tax rate to expand their offices, hire more staff, and purchase more equipment. Additionally, the government has no intention of going back in time. Our proposals would only be applied going forward. All existing savings will be unaffected. Small and mediums sized business owners can continue to use all available, tax-sheltered savings plans such as pension plans, RRSPs and TFSAs. Less than 3% of wealthy individuals max out their RRSP, TFSAs and pensions. We are proposing to adjust tax laws that allow unlimited tax-sheltered accounts within a business over and above the limits that apply to everyone.
If you own a business and are saving against a possible downturn or to invest in your business, these changes will not affect you. As I mentioned above, changes will only be applied on a go-forward basis – all existing savings for personal use in a business will be unaffected. Our proposals will only impact a business owner if the savings are used for personal use moving forward.
Over the course of the past few weeks as I’ve been working to fully understand the implications of these proposed changes, I’ve come across a number of articles and discussions that assert that the legislative changes being proposed will unfairly affect women entrepreneurs more than their male counterparts. As the Vice-Chair of the House of Commons Standing Committee on the Status of Women, I took these claims very seriously and made sure in my conversation with Minister Morneau to address them. As part of the consultation process the department will be conducting a Gender Based Analysis Plus assessment on the proposed changes to see what inadvertent consequences the proposals may have on people with different intersecting identities. Our government strongly supports women entrepreneurs and feedback on how these changes may affect women different than men are welcome and needed.
The Minister also made me aware of Special Employment Insurance Benefits that since 2010 have been made available to people self-employed on a voluntary basis. Prior to 2010 the self-employed were not eligible for any EI benefits. Now, however, for individuals on maternity leave (including small business owners), EI provides a 55% replacement rate on employment income, up to a maximum salary of $51,300.
I am very proud of all of the work successive governments have done to lower the corporate tax burden and make Canada such a competitive country when compared with other Western nations. A KMPG report entitled; Competitive Alternatives 2016 Special Report: Focus on Tax; comes to the conclusion that the total business tax costs in Canada are 48% lower than those in the United States and that total business tax costs in Canada are the lowest in the G7.
Since 2000 the federal general corporate income tax rate was cut nearly in half from 29.12% in 2002 to 15% today. On top of that, the federal small business tax rate has been reduced from 13.12% to 10.5% over the same period of time; as previously stated, it is now the lowest rate in the G7. This reduction in particular was supplemented by a series of increases to the amount of income eligible for the small business tax rate from $200,000 in 2003 to the current $500,000 level.
I appreciate that these proposed changes may affect you. I encourage you to review the full document, speak with your accountant and submit your comments via the link provided above. A fair tax system requires constant attention. An update is needed as the corporate landscape has changed dramatically since the last time these regulations were put in place. We will make sure that the rules are functioning as intended and that they result in Canadians sharing in the advantages of our competitive corporate tax system.
If you have any more questions, I encourage you to reach out to my office at email@example.com or at 905-847-4043.