Small Business Owners Benefit from Election Results

Now that the 2015 Election is finished, the new majority Liberal government should soon begin implementing their changes for business tax requirements. While nothing is set in stone yet, small businesses could benefit the most from these proposed tax measures.

Currently, there is a promising proposal to reduce the small business tax rate from 11% to 9% over the next four years. Even though the new Liberal government supports this small business tax reduction, they will be keeping a watchful eye on larger corporations who try to use this tax measure for their personal benefit. In the past, some high-income earners have been found to use the Canadian-Controlled Private Corporation (CPCC) status to their own advantage.

To make sure that small businesses do flourish under this new tax reduction, the government will most likely need to change the definition of what kinds of companies are truly a small business. In fact, this government could duplicate what the Quebec government has recently used to define small businesses for their tax measures. In Quebec, a small business is identified as:

1. A company that has more than three full-time employees that work year-round, or

2. A corporation that has 25% or more of its main functions in the manufacturing or primary sector. The primary sector refers to businesses that make direct use of Canada’s natural resources such as agriculture, fishing, forestry and mining.

If the new Liberal government does set these parameters for the small business reduction (SBD), many professional corporations will need to pay a 15% federal corporate rate based on their active business income. With the SBD set to begin after 2016, small businesses should start to see their tax burden get lighter over time.