Small biz coalition keeps heat on Finance as tax changes loom

The Coalition for Small Business Tax Fairness continues to urge Finance Minister Bill Morneau and the Department of Finance to act decisively and amend the new rules related to passive investment income announced in federal budget 2018.

Read: Feds to tie passive income threshold to small business deduction

The coalition includes organizations such as Advocis, Federation of Mutual Fund Dealers, Institute of Advanced Financial Planners, Canadian Bar Association, Canadian Taxpayers Federation and many others.

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In a release, the coalition says the government previously promised that passive investments currently held by small businesses would be grandfathered under the new rules. However, “this will effectively no longer be the case as past passive investments will be used to shut out some small businesses from accessing the small business tax rate going forward,” says the coalition. It’s concerned that small businesses will be taxed like big business, significantly increasing 2019 tax bills.

“The proposed rules penalize businesses that have been compliant with the law and acted prudently in the face of economic uncertainty and risk by creating a capital reserve through passive investments,” says Dan Kelly, president of the Canadian Federation of Independent Business (CFIB), in the release. “We’re asking the government to keep the promise they made to the small business community and protect firms with previous passive investments from the new rules before the budget is signed into law.”

The coalition’s ultimate message to the feds is clear: don’t proceed with proposed changes to passive investment income rules.

If the government does proceed, the coalition urges the feds to work with its members and with tax professionals to ensure that existing passive investments aren’t included in the formula in determining eligibility for the small business deduction going forward.

The coalition also makes further recommendations to the federal government, as follows:

• Implement a more gradual grind in eliminating the benefit of the small business tax rate.
• Raise the threshold where passive investment income begins to affect a firm’s access to the small business rate, to $100,000 from $50,000, to exempt more small firms.
• Index to inflation the $50,000 and $150,000 exemption limits to prevent small businesses from being subject to bracket creep on the taxation of passive investment income.

For more details, read the coalition’s most recent letter to Finance.

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