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

Just Posted

Repen: FOI data proves Telkwans being ripped off by ICBC

Former Telkwa mayor received a response from ICBC and says the results don’t look good for residents

Fires still burning near Telegraph Creek

BC Wildfire Service assures residents of a proactive plan heading into wildfire season

Northwest entrepreneurs pitch their plans for cash prizes

ThriveNorth announces 12 finalists in this year’s business challenge

Gas prices spike in northern B.C. ahead of the long weekend

Fuel went up 17 cents overnight in Prince Rupert

Cyclist braking stigma on addiction from coast to coast

Mathew Fee aims at world record for longest distance on BMX bike while sharing his story of recovery

‘No answers:’ Canadians react to Sri Lanka bombings that killed hundreds

The co-ordinated bomb attacks killed at least 207 people and injured 450 more on Easter Sunday

RCMP confirm witnesses say body found at Kelowna’s Gyro Beach

Police tape is blocking part of the beach and several RCMP officers are on scene.

B.C. fire department rescues kittens

Enderby homeowner not aware kittens in wood pile near garbage pile fire that got out of hand

QUIZ: How much do you know about Easter?

Take this short quiz and put your knowledge to the test

B.C. VIEWS: NDP’s lawyer show is turning into a horror movie

Court actions pile up over pipelines, car insurance, care aides

Global Affairs warns Canadians in Sri Lanka there could be more attacks

A series of bomb blasts killed at least 207 people and injured hundreds more

Waste not: Kootenay brewery leftovers feed the local food chain

Spent grains from the Trail Beer Refinery are donated to local farmers and growers, none go to waste

Deck collapses in Langley during celebration, 35 people injured

Emergency responders rushed to the Langley home

Most Read