(Aug. 28/17) If you’re a small business operator who created a private corporation, potential tax changes could impact you. This proposal by the federal Finance Minister, introduced in July, overhauls the taxation of private companies.

The proposal aims to make sure that high-income earners don’t incorporate to reduce their personal income taxes, but the changes could have consequences for restaurant entrepreneurs and their family members.

Proposed taxation changes affect the following:

  1. Income sprinkling: Changes would prevent owners from reducing their taxes by “sprinkling” income among family members (shareholders) in lower tax brackets. This change doesn’t recognize the shared risk of family members who are all vulnerable – in terms of their assets, usually their home and a means of support – if the venture fails.
  1. Passive investment income: Changes prevent corporations from retaining earnings as investments within the business – such as in savings accounts, GICs or stock portfolios – instead of investing the earnings to grow the business. This change doesn’t recognize the fluid economic and business cycles that restaurants operate in. It doesn’t account for the fact that restaurants need to have investments as insurance against unforeseen costs or save for major investments to the business.
  1. Capital gains: Changes limit lifetime capital gains exemption to only one shareholder in the family. This would impact the ability of restaurant operators to sell or transfer their business to a family member, as well as their planned retirement income.

 Learn more about the proposed changes.  

 

What does this mean for you?
If you’re a public company or a shareholder of one, these changes don’t affect you. However, if you’re Canadian-controlled private corporation with family members helping you grow your business, you and your family members could be impacted.

 

What should you do?
If you’re in this situation, we recommend you consult with your accountant or tax specialist to see how these changes impact you. After that, contact your Member of Parliament with concerns.

For general tax advice on this issue, review KPMG’s information sheet. To speak to an expert, contact KPMG’s Rakan Aown at 1-888-99-ADVSR or 1-888-992-3877.

 

Next steps
The federal government wants responses to this proposed legislation by Oct. 2, which we believe is not enough time to identify its complex and sweeping changes to the tax system. We’ve joined a small business coalition to ask for an extension to the consultation. We’ll work together to point out the unintentional effects on small businesses and future economic growth.

 

We want to hear from you
Restaurants Canada wants to know how these tax changes will affect you. Is it a big issue for you or not at all? Tell us by taking our survey.

Your response will help us put together our submission to the Finance Minister and our pre-budget presentation to the House of Commons Finance Committee in the fall.

 

Got questions? Contact Restaurants Canada’s Member Services Department at 1-800-387-5649.

3 comments

3 responses to “Proposed tax changes target small businesses”

  1. David Hodds says:

    What is with Canada, provincially and Federally trying to hurt small businesses and business owners?
    If small business is hiring and supporting so many individuals and their families, you would think the government would be giving them every advantage they could.
    If the government is forcing hire wages for staff of small business while at the same time taking away any kind of benefit to owning a corporation, the owners will soon give up and get out of business all together.
    Perhaps government should pay business owners $10,000 for every full time person hired and retained. I would wager there would be many more people hired, and owners would also benefit.

  2. Paul says:

    Membership in organizations, such as Restaurants Canada, is important, as it drives the ability to consult, and influence, public policy. Yes, all individual Canadians are entitled to their opinions, but to express them forcefully and persuasively, there is no substitute for involvement and the support that comes from an organized and unified expression of views. For a copy of the Coalition letter to Minister Morneau, please feel free to contact pmckay@restaurantscanada.org. You may want to use these arguments and positions in your own communications with your MP. All the best, Paul

  3. Paul says:

    The Coalition has updated their submission to Minister Morneau with new examples of how this will affect the smallest businesses. Happy to share that with you. Just let me know if you’d like a copy pmckay@crfa.ca

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