The Government of Canada is committed to fixing a tax system where wealthy and high income individuals are encouraged to use their private corporations to pay lower tax rates than middle class Canadians. The Government has listened to small business owners, professionals and experts during the consultation on tax planning using private corporations, and will act on what it has heard.
Following the close of formal consultations, Finance Minister Bill Morneau, Small Business and Tourism Minister Bardish Chagger and Parliamentary Secretary for Finance Joël Lightbound today thanked the thousands of Canadians from across the country who engaged in this important discussion. Their voices were heard at town halls, roundtables, Facebook Live events and meetings held from Vancouver to St. John’s. Minister Morneau also met with Parliamentarians, including members of the House of Commons Standing Committee on Finance. Canadians’ views are being carefully considered, and a detailed review of submissions received during the consultation period is being undertaken.
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. About 83 per cent of passive investment income is earned by Canadian-controlled private corporation (CCPC) owners making more than $250,000. About 70 per cent of these individuals are men.
- An increasing numberof 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.
- 80 per cent of the passive investment income in Canada is earned by 2 per cent of all CCPCs.
- Only an estimated 50,000 family-owned private businesses are sprinkling income in ways that could be affected by the proposals to ensure tax fairness.
- CCPCs benefit from a combined general corporate tax rate that is 12 percentage points lower than Canada’s largest trading partner, the United States.
- Small businesses in Canada benefit from support that includes a reduced federal income tax rate of 10.5 per cent on their first $500,000 of active business income.
- The combined federal-provincial-territorial average tax rate for small business is 14.4 per cent, 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 growth and job creation.
- In the course of the consultations, over 21,000 written submissions were received by the Department of Finance Canada. As in many of the face-to-face consultations, a number of submissions touched on important Government priorities that have been raised in parallel with the issue of tax planning using private corporations.