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Small Business and the 2016 Federal Budget: Could You be Affected?

15/03/2016


During his election campaign last year, Prime Minister Justin Trudeau indicated that the small business tax system needed ‘tweaking’ to ensure it benefits small businesses which actually create jobs as opposed to being utilized by wealthy individuals, such as doctors and lawyers, to reduce their own taxes. Since then, many small business owners, especially professionals, have been anxiously awaiting the Liberal party’s first Federal Budget, which will be presented on March 22, 2016.

In the meantime, the House of Commons finance committee has tabled a pre-budget report that detailed fifty-six recommendations to the Minister of Finance in respect of the 2016 Federal Budget. Although there is no guarantee these recommendations will be reflected in next week’s announcements, we are encouraged by them nonetheless and would like to highlight three of them in particular.

  1. Recommendation #6: The federal government initiate a comprehensive review of Canada’s tax laws with the objective of making the country’s taxation system simpler, fairer and more efficient.
  2. This recommendation is broadly worded; however, an initiative to improve our taxation system would be most welcome. There appears to have been an ad hoc approach to the introduction of certain taxation measures, such as new tax credits. A ‘clean up’ process which would simplify and improve efficiency seems like a step in the right direction.

  3. Recommendation #7: The federal government review the country’s taxation policy regarding small business transfers, with a view to facilitating the transfer of such businesses within families.
  4. With respect to succession of a business, when transferring ownership to a related party, such as a parent to a child, the current system does not provide the same tax benefits as would be received by non-related parties undertaking the same transaction. Penalizing such related party transactions is an issue that many (including MNP) have addressed with Finance; therefore, the recommendation of a review of this policy is highly satisfactory.

  5. ​​Recommendation #8: The federal government not make any changes to the current federal taxation regime and other rules as they apply to small businesses, including professional businesses, incorporated as Canadian-controlled private corporations.
  6. Small business owners, especially professionals such as physicians, dentists and lawyers, have been lobbying the government to not pursue the changes to the small business deduction suggested during the election campaign. For example, prior to the election, the Canadian Medical Association (CMA) wrote to senior federal government officials outlining the “unique nature of medical practice as a business” and stating that “physicians are highly skilled professionals who provide an important public service and are significant contributors to the knowledge economy.” The CMA also added that as self-employed small business owners, physicians typically do not have access to pensions or health benefits and must, in many cases, provide for their own benefits. It is encouraging to think that the finance committee has paid attention to the various lobbying efforts and identified professional corporations as small businesses that should be entitled to the same tax benefits as other small businesses.

​How these recommendations will fare next week when the Federal Budget is tabled remains to be seen; however, as tax practitioners we are hopeful that the Minister of Finance has been influenced by the same factors that led the finance committee to their conclusions.

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To learn more, contact Loren Kroeker, CPA, CA, Senior Vice President, Tax, at 250.734.4330 or ​[email protected].