Are you an SME owner who has been keeping their finger on the pulse of the various tax loopholes in Canada so to chart out your next move? If so, this article is definitely for you. Canada’s tax framework has received some alterations this year that may well affect your financial behaviours.
As per The Department of Finance, these modified provisions are in place to create a fairer, stronger and more effective economy. These specifically pertain to lower small business tax rates and fresh rules for dividends.
If you need help with grappling with these changes and adjusting your company’s financial structure, reach out to us! HSM is a team of highly experienced and professional chartered accountants in Markham, dedicated to leveraging innovative solutions to bolster your financial health.
With the diametric changes happening in the tax world, it’s best to start strong and stay prepared as a small business owner. The first step? Approaching a trusted business valuation company in Markham to get a valuation report done ahead of time. That way, you will be able to strategically position your business to take advantage of all the changes in the industry, increase its value over time, and make it a lucrative investment during buy-sell agreements.
Among our number are some equally accomplished estate planning accountants, who assist in the transfer of your assets and offset estate taxes on behalf of your beneficiaries.
Without further ado, let’s delve into the biggest changes in Canada’s tax structure this year.
Small Business Taxes Take a Nosedive
The Trudeau administration received a lot of pushback from small and medium business owners regarding the tax rate, to which they responded by decreasing the small business tax rate from 10% in 2018 to 9% in 2019. This move is expected to enable small businesses to save as much as $7,500 in federal tax every year.
As with most things, the federal government has also introduced a caveat in that the tax rates on dividends for SMEs will skyrocket.
Small Business Dividends Skyrocket
As per the Income Sprinkling Rules, the federal government has levied a limitation on dividends for certain business owners. So for instance, depending on the situation, owners of private corporations will no longer be able to provide dividends to family-related shareholders; at least not without having to undertake huge taxation rates.
These changes provide clarification as to whether a family member is to be exempt from the new Tax on Split Income rules. Accordingly, the following family members will be exempted from the highest marginal tax rates;
- The owner’s spouse if the owner has significantly given to the business and is over 65 years of age.
- Individuals aged 25 or over who own 10% or more of the corporation that earns less than 90% of its income from the provision of services. These individuals should not be eligible for the substantial labour exemption contribution.
- Individuals who are in receipt of capital gains from eligible small business corporation shares or farm or fishing property, provided they are not eligible for the highest marginal tax rates as per current rules.
We Can Help You Take Advantage of These New Rules
If you’re a Canadian controlled private corporation with eligible shareholders, the new taxation rules will sway your financial practices.
At HSM, our extensive team of financial advisors are at your service! We use our collective expertise of over 50 years to guide you through unfamiliar territory and secure your financial future.
Contact us today and we can help you make sound financial decisions in compliance with the new rules!
