Is Your Business Income Still Eligible for the Small Business Rate?

Business owners have long enjoyed the small business rate in Canada. Accountants and lawyers, over the years, have developed clever plans to access and even multiply this benefit for their clients. It’s time to re-look at these types of plans to ensure your tax plans are adjusted to comply with the new rules.

“For a lot of people, this could mean almost $72k in cash out flow. Retaining the access to small business rate should be a top priority.”  – Sanjay Naicker, Managing Partner

Changes to small business deductions
Net Active Business Income up to $500,000 was taxable at a rate of 13.5% in 2016 and went down to 12.5% from 2017 onward. Partnership structures or inter-company billings amongst related group of companies were ways of accessing and even multiplying this benefit. The recent changes introduced by the federal government is aimed at combating this type of planning.

The legislation is long and complex, so we wanted to break out the top 3-scenarios that may affect your business’ eligibility for the deductions:

  1. If you have any interest or ownership in a private business through which you earn income. See example below:
  2. If you are a partner in a partnership and your corporation invoices the partnership. See example below:
  3. If you are an independent contractor. In this situation, the penalties could push your corporate tax rate up to 45% from 12.5%.

What to do next?
If your current structure is designed for you to access or multiply the preferential small business rate, and/or one of the three business situations listed above applies to you, it would be wise to assess if you still qualify. We would be happy to review your business situation to determine if it will be impacted by the changes. And if so, we are able to explore ways to properly structure your business to minimize your corporate taxes and remain fully compliant.

If you have any questions on this post, or would like to schedule a complimentary consultation, please get in touch with us.  //  587.320.3940

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