Ottawa to cut small business tax rate to 9%

Changes to tax reform proposals aimed at clarifying wealthy are the target

Justin Trudeau will belatedly honour his campaign promise to cut the small business tax rate to nine per cent as his government scrambles to undo the damage from weeks of controversy over proposed tax reforms for private corporations.

The prime minister is to announce the reduction Monday, along with some changes to the tax reform proposals in a bid to re-establish the Liberals as the champions of middle-class Canadians.

That title has been tarnished in recent weeks as 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.

Related: MP hears loud and clear opposition to federal tax change plan

The changes are expected to be largely technical in nature, 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.

They’re also expected to address concerns the reforms will disproportionately impact women, inhibit the ability of small business owners to save for a rainy day and make it impossible for farmers, fishers and others to pass their businesses on to their children.

The addition of a cut to the small business tax rate appears to be the political equivalent of a spoonful of sugar to make the reform medicine go down.

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 in the 2016 budget, Finance Minister Bill Morneau froze the rate at 10.5 per cent and cancelled a legislated reduction to nine per cent instituted by the previous Conservative government.

Faced with an angry backlash to the tax reform proposals, the Liberal government is now reviving the nine per cent promise, a source, who was not authorized to speak publicly on the matter, confirmed Sunday.

Finance Minister Bill Morneau has acknowledged that changes are required to address the concerns his reform proposals have triggered.

He’s signalled that he’ll ensure angel investors and venture capitalists, whose financing helps start-up companies get off the ground, won’t face unintended consequences.

And he’s signalled that he’ll make changes to avoid subjecting companies to additional, onerous red tape, complicating the intergenerational transfer of small businesses or hurting the ability of women entrepreneurs to save money for maternity leaves.

Related: Tax changes needed to avoid ‘two classes of Canadians’: finance minister

The Liberals’ popularity has taken a hit in some opinion polls amid the backlash to the proposed reforms, first announced in mid-July.

Monday’s damage control effort begins with an early morning briefing for Liberal MPs, some of whom have been among the most critical of the proposals.

Trudeau will unveil the changes publicly a couple of hours later at an event with small business owners in Markham, Ont., accompanied by Morneau and Small Business Minister Bardish Chagger.

On Friday, Morneau acknowledged that the government has to do a better job of reassuring middle class Canadians that they won’t be negatively impacted by the proposals.

“The fact that farmers won’t be impacted, we need to make that clear,” he said.

“The fact that, you know, small businesses will be able to continue to invest in their business, which is what we want, and won’t be worried about passing their business to the next generation, we’re going to communicate that clearly.”

As originally proposed, the plan would restrict income sprinkling, in which an incorporated business owner can transfer income to a child or spouse who is taxed at a lower rate, regardless of whether they actually do any work for the company.

It would also limit the use of private corporations to make passive investments that are unrelated to the company and curb the ability of business owners to convert regular income of a corporation into capital gains, which are taxed at a lower rate.

Critics have complained that the reforms would hurt entrepreneurs who take personal financial risks when they open a business, impeding their ability to save for retirement or maternity leave and to sock away funds for economic downturns.

Joan Bryden , The Canadian Press

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Village of Queen Charlotte approves business facade improvement grants

Applications from Gather, dental clinic, A Level Up approved, leaving about $14,000 up for grabs

Recycling services in Queen Charlotte, Port Clements expanding next week

Residential plastics will be accepted again, but most residential transfer stations remain closed

‘At least they’re safe:’ Arrival of new Syrian refugee family to Haida Gwaii delayed due to COVID-19

Operation Refugees says family stuck in Lebanon with no flights, ‘but at least they’re safe’

‘Good news:’ Council of the Haida Nation releases guidelines for expanding social circles

Next steps also say outdoor spaces such as parks, playgrounds, trails may be reopening for day use

Gudangaay Tlaats’gaa Naay wins ‘Most Outstanding School’ award

B.C. School Sports will present school with banner, add GTN to plaque as winners of 2019-2020 year

22 new COVID-19 test-positives, one death following days of low case counts in B.C.

Health officials urged British Columbians to ‘stand together while staying apart’

New study is first full list of species that only exist in Canada

Almost 40 per cent of them are critically imperilled or imperilled and eight are already extinct

Federal aid for care home systems needed ahead of second wave, advocates say

Ontario Long Term Care Association calling for more action

B.C. woman, 26, fatally shot by police in Edmundston, N.B.

Police were conducting a well-being check at the time of the incident

Introducing the West Coast Traveller: A voyage of the mind

Top armchair travel content for Alaska, Yukon, BC, Alberta, Washington, Oregon and California!

Horgan calls for national anti-racism program; will pitch idea to PM, premiers

Premier John Horgan said he’s horrified by the death of George Floyd in the United States

Chilliwack dad rescues two young daughters after truck plunges into lake

“I used every single one of my angels that day,” said Dennis Saulnier

VIDEO: Internal investigation into aggressive arrest by Kelowna Mountie

A video allegedly shows a Kelowna Mountie striking a man several times

Most Read