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Ontario announces small business tax cuts

Ontario announces small business tax cutsIn mid-November, Ontario Finance Minister Charles Sousa announced a new small business tax cut and incentives to hire young workers during his fall economic statement. The announcement comes as small companies struggle to cope with elevated business costs and worry about the province’s impending minimum wage increase. Indeed, business lawyers in Ontario have been busy of late managing their clients’ many concerns.

The announced changes will cut the corporate tax rate on the first $500,000 of profit from 4.5 per cent to 3.5 per cent, effective January 1. Additionally, small businesses employing fewer than 100 people will receive a $1,000 incentive for hiring a person between the ages of 15 and 29, and a further $1,000 for retaining them for six months.

Even with the cut, Ontario will still have the third-highest small business tax rate among the provinces, behind only Prince Edward Island at 4.5 per cent and Quebec at eight per cent. However, the province’s corporate tax rate, which applies to earnings above $500,000, is the second lowest in Canada at 11.5 per cent, trailing only British Columbia.

For the clients of some business lawyers in Ontario, taxes are less of a concern than the minimum wage, which will increase from $11.60 per hour to $14 per hour on January 1, 2018, and to $15 per hour in January 2019. Sousa reinforced this timetable in his speech.

“We will not back down from these commitments,” he said. “An increase to minimum wage cannot wait. People cannot wait. Delaying an increase is denying an increase.”

With provincial elections just over five months away, Minister Sousa’s tax announcement was seen by some as a play for votes. Progressive Conservative finance critic Vic Fideli called it “a pre-election Hail-Mary pass, saying anything to cling to power.” Provincial NDP leader Andrea Horwath complained that no new funds were allocated to addressing high hydro bills or issues in healthcare and senior care.

However, many small business owners are unlikely to be swayed by the Liberals’ outreach.
“I think it shows a total lack of understanding and ignorance about small business,” Fred Luk, owner of Fred’s Not Here and Red Tomato restaurants in downtown Toronto, told the CBC. “For them to offer one per cent to small businesses and restaurants, basically it’s a joke because many of us will not survive.”

If you are small business owner seeking guidance on tax rates or any other legal issue, contact Nanda & Associate’s team of business lawyers in Ontario to learn how we can help. Our team can help you address your business concerns.

The federal government announces revisions to tax plan

The federal government announces revisions to tax planEarlier this month, we covered the Liberal Party of Canada’s new tax plan and outlined how the proposed changes could affect entrepreneurs and Ontario business lawyers. We also noted that Finance Minister Bill Morneau seemed open to revising the plan amid an uproar from business owners who feared their tax burdens would increase.

In the weeks following that post, the Liberals stayed true to Morneau’s word and developed several revisions to the plan. Here’s what you need to know:

Small business tax cut

On Monday, October 16, Trudeau and Morneau appeared at a news conference in Stouffville, Ontario to announce revisions aimed at appeasing doctors, farmers, business associations and other concerned stakeholders. The highlight of the event was a promise to lower the small business tax rate to 10% at the beginning of 2017 and 9% by year 2019. The new rates will apply to businesses with up to $500,000.00 in annual revenue.

“This tax cut will support Canada’s small businesses so that they can keep more of their hard-earned money, money that they can invest back into their businesses, their employees and their communities,” Trudeau said.

Other revisions

The government also announced that it will eliminate proposals targeting businesses’ ability to convert earnings to capital gains, and will simplify regulations on income sprinkling.

Business owners and MPs who had criticized the initial plan seemed generally appeased by this new announcement, with which most Ontario business lawyers are also likely to agree.

“I feel very, very positive,” said New Brunswick MP Wayne Long to the Financial Post. “For the first time in a couple months, I’ve got a bit of a smile on my face. There wasn’t a lot of specifics today, but I’m very, very confident – by certainly the tone and messaging of the minister – that a lot of these concerns … will be addressed.”

The hundreds of millions of dollars that small businesses are expected to save “can be better used by business owners to create jobs, expand their operations, or perhaps just reduce some of the pressure on them than it would if left in the hands of the government,” added Dan Kelly, president of the Canadian Federation of Independent Business.

If you own a business and have questions or concerns about Ottawa’s proposed tax reforms, contact the Ontario business lawyers at Nanda & Associates today. Our experienced team can help you better understand how the government’s tax plan might affect you and your business.

How will Ottawa’s proposed tax changes affect businesses?

What is Changing?In mid-July 2017, the federal Liberal Party announced tax changes aimed at ‘improving fairness in the tax system by closing loopholes and addressing tax planning strategies.’ This plan consists of: a middle class tax cut affecting roughly nine million people; a new Canada Child Benefit to alleviate child poverty; legislative action to ‘enhance the integrity of Canada’s tax system’; and, renewed investment in the Canada Revenue Agency’s efforts to improve upon tax compliance measures.

Since the government’s announcement, professionals, tax planners and business lawyers have been debating the potential negative impacts of the proposed changes upon Canadian businesses. The plan contains several items that could affect business owners, including restrictions on income sprinkling and capital gains.

Income Sprinkling

Business lawyers in Ontario are familiar with this common tactic employed by business owners to reduce their family’s tax burden. It involves paying a salary or wage to lower-earning family members, who may or may not work for the company, in order to divert some of the business owner’s income. According to the Department of Finance, this approach is currently employed by roughly 50,000 Canadian families.

The proposed changes would apply a reasonableness test to determine whether adult children are actually contributing to the business. It remains to be determined whether this test can be properly applied to the circumstances at hand.

The Liberals’ proposed restrictions on income sprinkling could have an acute impact on farmers, who suggest that the test simply doesn’t work as against the reality of running a farm family business. The Canadian Taxpayers’ Federation also criticized the new rule as a “small biz tax hike.”

Capital Gains

Capital gains consist of profits above the price of acquisition accrued from the sale of stocks, securities, or real property. According to CTV, businesses sometimes convert their income into capital gains to take advantage of the lower tax rate applied to these assets.

“Business owners can currently take out the retained earnings of a corporation and sell some shares to a holding company, where the earnings don’t get taxed,” CTVNews.ca’s Sonja Puzic explained in a recent article. “Under the proposed changes, accessing those assets would result in immediate taxation, which some business owners say will make growing a company and planning for retirement difficult.”

Changes to the changes?

On October 3, Finance Minister Bill Morneau admitted that the government’s tax proposal will need tweaking before moving forward.

“Changes are going to be required – as we move forward we will have more information on timing,” he told the CBC. “For those pieces of legislation that we’ve already drafted, we’ll take into account what people have told us to determine how we go forward from here.”

If you have any questions or concerns about these recent changes to federal tax laws and how they may affect your business, feel free to contact the business lawyers at Nanda & Associates today to help you prepare accordingly.