Small business rates that are easier to access

Currently, if SMEs have taxable capital between $ 10 million and $ 15 million, SMEs’ access to tax rates will be reduced proportionally. When taxable capital reaches $ 15 million or more, SMEs will have complete access to tax rates.

The budget has proposed to eliminate access altogether when taxable capital reaches $ 50 million, and to eliminate access in a more gradual manner.

This measure applies to tax years beginning on or after the budget date. The government estimates that companies will save about $ 660 million in taxes between 2022 and 2027 to reinvest and create jobs.

Keith MacIntyre, a partner at Grant Thornton LLP in Halifax, states that capital-intensive companies are often not subject to small business fees. With this proposal, the federal government “provides relief” to businesses such as car dealerships and real estate companies.

But for these companies, “What’s really negative here? […]It means that you will need cash reserves to save for future expansion, “adds Keith McIntyre.

Passive income rules prevent this. When investment income exceeds $ 50,000 and reaches zero at $ 150,000, SME deduction limits begin to be lowered.

This threshold prevents the company from accumulating cash reserves to pay the $ 1 million building deposits needed for its activities.

“The fact that the passive income rules were not adjusted at the same time is [cette nouvelle règle] It’s not very important for many capital-intensive companies that save conservatively, “says Keith MacIntyre.

Nevertheless, the Canadian Independent Business Federation (CFIB) welcomed this proposal. In a press release, CFIB President Dave Kelly praised the government for accepting CFIB’s long-standing recommendation to raise this threshold to $ 50 million, which will allow more SMEs to become medium-sized businesses. Is encouraged to become. “

Another budget item related to passive income is to crack down on the use of foreign businesses to avoid paying taxes on passive income.

According to the budget, “Some people manipulate the status of the company’s Canadian-controlled Private Enterprise (CCPC) to avoid paying additional refundable corporate taxes paid on the investment income earned by the company. increase”.

For example, in order to disqualify as a CCPC, a company may relocate to a low tax foreign jurisdiction, use a foreign shell company, or transfer a passive portfolio to a foreign company, depending on the budget. increase.

Keith McIntyre gives an example of a business incorporated into the British Virgin Islands or other foreign jurisdictions to circumvent CCPC status and tax large capital gains when selling shares. increase.

“We can cut the tax on that sale by almost half,” he says. (For example, in Nova Scotia, CCPC is taxed on investment income at a total tax rate of almost 53% for 29% of ordinary businesses). It’s a game of arbitration. »»

The federal government has tried to challenge this type of plan in court, but he says he is currently considering legislation.

Government proposes change Income tax law Therefore, for tax years ending after the budget date, investment income earned and distributed by private companies, which is essentially CCPC, is subject to the same taxation as investment income earned and distributed by CCPC.

This kind of avoidance is so widespread that the government “this is a cautious plan,” confirms Keith McIntyre.

The bill will increase federal revenues by $ 4.2 billion over the five years from 2022 to 2011, the budget said.