Canada: Loophole, or not a loophole? SMEs clash with Ottawa

With the new Federal Budget announced last week, there have been mixed emotions for Canadian-controlled private corporations (CCPCs). CCPCs used to enjoy small-business tax deductions, and within this new budget, these deductions have been hindered, but not completely removed.

Historically CCPCs could choose to have their first $500,000 in earnings taxed at a small-business rate, while the new plan implements a sliding scale, which reduces the tax benefit for those higher on the economic ladder.

Shane Onufrechuk of KPMG believes this “huge problem that everybody was excited about in July, the government has completely walked away from,” citing the initial government plan to close the tax benefit or charge CCPCs 73% on income from passive investments.

The backlash came from the idea that when doctors and lawyers use these deductions it effectively allows them to avoid income tax and be taxed at the much lower small-business rate.

The argument to not change these deductions, as articulated by Iain Black of Greater Vancouver Board of Trade, is the “little company with $10 million or $15 million a year in revenue, and you’re sitting on $3 million or $4 million because you’ve been saving… the government is now going to penalize you for that.”

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