Targeted Tax Fairness Measures Will Protect Small Business Owners Including Farmers and Fishers
October 19, 2017 – Erinsville, Ontario – Department of Finance Canada
When you have an economy that works for the middle class, you have a country that works for everyone. As the Government of Canada lowers the federal small business tax rate to 9 per cent, it is committed to ensuring that Canada's competitive corporate income tax rates are not being used by high-income individuals to gain a personal tax advantage.
Finance Minister Bill Morneau and the Minister of Agriculture and Agri-Food, Lawrence MacAulay today announced the next steps in the Government's plan to move forward on changes to the tax system that will 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.
Minister Morneau announced today that the Government will not be moving forward with measures relating to the conversion of income into capital gains. During the consultation period, the Government heard from business owners, including many farmers and fishers that the measures could result in several unintended consequences, such as in respect of taxation upon death and potential challenges with intergenerational transfers of businesses. The Government will work with family businesses, including farming and fishing businesses, to make it more efficient, or less difficult, to hand down their businesses to the next generation.
In the coming year, the Government will continue its outreach to farmers, fishers and other business owners to develop proposals to better accommodate intergenerational transfers of businesses while protecting the fairness of the tax system.
Since the launch of consultations on July 18, Canadians have 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. This week, the Government is announcing further steps towards fairness for the middle class that will take into account feedback received from Canadians during the consultation period. The Government's approach will ensure the measures are focused on a small number of high-income individuals who get the biggest advantage from existing rules.
"Our government is committed to Canada's farmers and fishers. In our last budget, we recognized the agri-food sector as one of the most important for Canada's economy, setting an ambitious goal to increase agri-food exports to $75 billion by 2025. We want to see farm and fishery families succeed. As we move forward with creating a fairer tax system for the middle class, we will work to protect family farms and fisheries, and the ability of all family-run business owners to pass down the results of their hard work to the next generation."
- Bill Morneau, Minister of Finance
The Lifetime Capital Gains Exemption (LCGE) provides a tax exemption for capital gains realized by an individual on the disposition of qualified small business shares up to a lifetime limit of $835,716 in 2017, indexed to inflation.
The lifetime limit in respect of capital gains from the disposition of qualified farm or fishing property is $1 million. A farmer or fisher can claim an LCGE of up to $1,000,000 on the disposition of eligible property, including on the transfer of such property to a child.
CCPCs with taxable passive income above the $50,000 threshold in 2015 represented 3 per cent of the CCPC population, but earned more than 88 per cent of total taxable passive income. The vast majority of businesses will not be affected by the tax changes.
In Canada, 80 per cent of passive investment income is earned by 2 per cent of all CCPCs.
More than 80 per cent of passive investment income is earned by CCPC owners making more than $250,000 per year.
An increasing number of Canadians—often high-income individuals—are using private corporations in ways that allow them to reduce their personal taxes. 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 3 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 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.
The Government will base its next steps on the following key principles. We will:
- Support small businesses and their contributions to our communities and our economy.
- Keep taxes low for small businesses, and support owners to actively invest in their growth, create jobs, strengthen entrepreneurship and grow our economy.
- Avoid creating unnecessary red tape for hard-working small businesses.
- Recognize the importance of maintaining family farms, and work with Canadians to ensure we don't affect the transfer of a family business to the next generation.
- Conduct a gender-based analysis on finalized proposals, to ensure any changes to the tax system promote gender equity.
- Targeted Tax Fairness Measures Will Protect Middle Class Small Business Owners
- Government Thanks Canadians for Helping Get Tax Fairness Right
- Government Moves to Reduce Small Business Tax Rate and Support Fairness for the Middle Class
- Next Steps in the Government's Plan for Tax Fairness and a Strong Middle Class
- Minister Morneau Holds Town Hall and Facebook Live Event in Oakville
- Parliamentary Secretary to the Minister of Finance Brings Listening Tour to Regina
- Minister Morneau Discusses Tax Fairness With Standing Committee on Finance
- Minister Morneau Brings Listening Tour to Toronto
- Minister Morneau Brings Listening Tour to Fredericton
- Minister Morneau Brings Listening Tour to Halifax
- Minister Morneau Brings Listening Tour to Gatineau
- Ministers Morneau and Chagger Kick Off National Listening Tour With Small Business Owners
- Minister Morneau Announces Next Steps in Improving Fairness in the Tax System
- Minister Morneau Brings Message of Tax Fairness to Toronto Region Board of Trade
Media may contact:
Office of the Minister of Finance
613-369-5699 / 613-462-5469
Department of Finance Canada
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