I’ve met with many of you over the last few months to learn how the proposed tax changes would impact your business. I appreciate the feedback that was provided and I presented it to the Ministry of Finance. Last week, we saw how your input helped inform better tax policy.
Amendments were made to three proposed areas of income sprinkling, passive investment and conversion of income to capital gains. I think you will find they are designed to help small businesses, including those in New Brunswick Southwest, succeed and grow. In addition to this, we kept our promise to lower the small business tax rate from 11 per cent in 2015 to 9 per cent by 2019.
Here are the highlights:
Update on Tax Consultation
Reduction in Small Business Tax rate:
- We are keeping our commitment to lower taxes on small businesses, from 11 per cent in 2015 to 9 per cent by 2019.
On Changes to Income Sprinkling:
- During the consultations, we heard concerns that the original proposal was too complex, and created uncertainty for family members.
- We will introduce a simplified proposal that addresses income sprinkling while not affecting genuine contributions to a business.
On Changes to Passive Income:
- Businesses can continue to save for contingencies or future investments in growth .
- A $50,000 threshold on passive income in a year (equivalent to $1 million in savings, based on a nominal 5-per-cent rate of return) – an amount that is exceeded by only about 3 per cent of corporations – is available to provide more flexibility for business owners to hold savings for multiple purposes, including savings that can later be used for personal benefits such as sick-leave, maternity or parental leave, or retirement.
- Under our plan going forward, 97% of businesses will see no tax increase on investment income. Changes will protect past investments and income earned from those investments.
- We will also ensure that incentives are maintained so that Canada’s venture capital and angel investors can continue to invest in the next generation of Canadian innovation.
- Proposed threshold of approximately $1 million will provide significant capacity to:
- Save for a sick leave, maternity or paternal leave.
- Save for a downturn and ability to withdraw funds for personal use.
- Save for retirement and account for risk. Threshold is over and above RRSP/TFSA limits and Lifetime Capital Gains Exemptions.
- 100 percent of businesses will have existing assets grandfathered, and the growth from these assets protected.
- With the threshold, going forward 97% of CCPCs will see no tax increase on investment income. 97 percent of CCPCs today have passive investments below the threshold.
Conversion of Income to Capital Gains:
- As a result of feedback from small business owners, we will not be moving forward with measures relating to the conversion of income into capital gains.
- During the consultation period, our government heard from business owners, including many farmers and fishers, that the measures could result in several unintended consequences, such as in respect of taxation upon death and potential challenges with inter-generational transfers of businesses.
- Our government will work with family businesses, including farming and fishing businesses, to make it more efficient, or less difficult, to hand down their businesses to the next generation.
Draft legislation will be prepared over the coming months and early into 2018. I ask you to continue to be engaged as I work to help get this right for my constituents in New Brunswick Southwest. Please don’ t hesitate to reach out to me at anytime.
PS: Listen to my recent interview on CBC Information Morning