Government Moves to Reduce Small Business Tax Rate and Support Fairness for the Middle Class

October 16, 2017 – Markham, Ontario – Department of Finance Canada

When you have an economy that works for the middle class, you have a country that works for everyone. The Government of Canada has already taken the first steps by lowering taxes for middle class Canadians, and is committed to ensuring that unintended advantages are not being used by high-income and wealthy individuals to pay less than their fair share in taxes.

Prime Minister Justin Trudeau, Finance Minister Bill Morneau and Small Business and Tourism Minister Bardish Chagger today announced that, as it has committed, the Government intends to lower the small business tax rate to 10 per cent, effective January 1, 2018, and to 9 per cent, effective January 1, 2019. To support this change, the Government will take steps to ensure that Canadian-controlled private corporation (CCPC) status is not used to reduce personal income tax obligations for high-income earners rather than supporting small businesses.

Based on what it heard from Canadians in a series of country-wide consultations on tax planning using private corporations, the Government will this week set out its approach to better target strategies used by the relatively small number of high-income individuals who get the biggest advantage from existing tax rules.

Ministers Chagger and Morneau today announced the Government's intention to simplify the proposal to limit the ability of owners of private corporations to lower their personal income taxes by sprinkling their income to family members who do not contribute to the business. The vast majority of private corporations will not be impacted by the proposed income sprinkling measures. Corporations with family members who meaningfully contribute to the business will not be impacted by the proposed measures on income sprinkling. In addition, the Government today announced it will not be moving forward with proposed measures to limit access to the Lifetime Capital Gains Exemption.

Since the launch of public consultations on July 18, Canadians engaged in an important discussion on proposed measures to address tax planning using private corporations. Through town halls and roundtables held from Vancouver to St. John's, Ministers and Members of Parliament heard and carefully considered the views and perspectives of small business owners, farmers, fishers, professionals and experts. In the coming days, the Government will announce further steps towards fairness for the middle class that will take into account this feedback.

Quotes

"We made a promise to middle class Canadians that we would lower their taxes and make sure everyone pays their fair share. We will be taking the next step towards greater tax fairness by addressing tax planning strategies that benefit the wealthiest, while fulfilling our commitment to lower the small business tax rate to 9 per cent. We will make sure this small business rate is effective in encouraging businesses to grow, buy new equipment and hire more workers. I want to thank the many Canadians, including my Parliamentary colleagues, who are helping us get this right. In the coming days, I look forward to meeting with people in every region of the country as we provide more details on the way forward for fairness, a strong middle class and a thriving business community."

- Bill Morneau, Minister of Finance

"This is the next step in our Government's work to build a stronger middle class, and to help those working hard to join it. The Prime Minister was very clear in my mandate letter that, as our Government lowers the small business tax rate, we must ensure that this lower rate supports hardworking small businesses and does not provide unfair advantages for high-income earners. Throughout the consultation period, we heard from many Canadians who agreed with the principle that we need a fairer tax system. Today`s announcement is good news for our economy, for small businesses, and for middle class Canadians."

- Bardish Chagger, Minister of Small Business and Tourism and Leader of the Government in the House of Commons

Quick Facts

  • An increasing number of Canadians—predominantly high-income individuals—are using private corporations in ways that allow them to reduce their personal taxes or gain a tax advantage. In some cases, someone earning $300,000 with a spouse and two adult children can use a private corporation to get tax savings that amount to roughly what the average Canadian earns in a year.
  • Only an estimated 50,000 family-owned private businesses are sprinkling income. This represents only a small fraction—around three per cent—of CCPCs.
  • All corporations, including CCPCs, benefit from a combined general corporate tax rate that is 12 percentage points lower than Canada's largest trading partner, the United States.
  • The Government intends to provide further support to small businesses in Canada through a further reduction of the federal small business tax rate to 9 per cent.
  • As a result, the combined federal-provincial-territorial average tax rate for small business would be lowered to 12.9 per cent from 14.4 per cent, by far the lowest in the G7 and fourth lowest among Organisation for Economic Co-operation and Development countries. Small businesses can retain more of their earnings to reinvest, supporting the growth of their business and job creation.
  • In the course of the consultations, over 21,000 written submissions were received by the Department of Finance Canada.

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Chloé Luciani-Girouard
Press Secretary
Office of the Minister of Finance
chloe.luciani-girouard@canada.ca
613-369-5699 / 613-462-5469

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