Last month, Federal Minister of Finance Bill Morneau tabled his first budget. It has already been much discussed and debated, with plenty of media coverage and analysis. According to some pundits, small businesses were hard hit; whereas others say that there was no significant pressure on – or benefit to – small businesses.
With such a disparity between opinions, have you been able to figure out how some of the budget items relate to your business?
Here’s a rundown of a few of the changes this crucial policy document had in store for SMBs and what they all mean for your business.
1) Small business tax rate frozen at 10.5%. Last year’s budget by the then-Conservative government had proposed dropping the small business income tax rate in increments from 11% at the time to 9% by 2019. At that time, the rate dropped to the current 10.5%, which is where it stays this year – and will remain until the current government decides otherwise.
What this means is pretty simple here, no expected tax break for SMB in 2016. But beyond 2016, this is expected to collectively cost small firms over $900 million more per year by 2019, according to the Canadian Federation of Independent Businesses (CFIB).
2) Changes to eligible capital property. Before the budget dropped, the Cumulative Eligible Capital (CEC) regime meant that when goodwill was purchased, 75% of what you paid for it went into a pool that depreciated at a rate of 7%. When goodwill was sold, only 50% of what you received was taxable. Now, when you buy goodwill, it goes into a Capital Cost Allowance (CCA) pool and is subject to similar rules for the purchase of any other depreciable capital assets. The new depreciation rate is 5% and when goodwill is sold, proceeds received will be taxed as a capital gain.
What this means is that any tax advantage gained from deferral has now been taken away.
3) Small business tax breaks are only for actual small businesses. A loophole that allowed some businesses to be structured as complex partnerships in order to take advantage of small business tax deductions has been closed.
This means that the up to $500,000 small business tax deduction is now only available for actual small businesses.
Those are three of the most notable changes affecting small businesses in this year’s federal budget. But don’t worry, if you don’t fully understand how the major changes (and minor changes) will affect your small business, we do and we can help.