The Greater Charlottetown Area Chamber of Commerce welcomed a new tax proposal unveiled over a series of announcements this week by the federal government. In addition to planning a reduction in the small business tax rate, Minister Bill Morneau responded to strong opposition to his original proposal from business owners in Prince Edward Island and right across the country.
“This new proposal signals that the federal government is recognizing the concerns of Canadian businesses. Today’s announcement specifically underlined the importance of passive income investment for small businesses,” said Rory Francis, President of the Chamber, “At first glance, the $50,000 threshold on passive investment income proposed appears to be low, and we will be further investigating the impact with tax specialists and our Chamber membership.”
The announcement that the proposal to limit the Lifetime Capital Gains Exemption is now off the table shows the federal government is acknowledging the importance of family succession planning for small business. Questions still remain around the ‘income sprinkling’ proposal and the ‘reasonableness test’ of a family member’s contribution to the business. This lack of clarity will make it difficult for business owners and their tax advisors to determine what are meaningful labour and capital contributions in the business.
“Today’s announcement, combined with the federal government’s announcement this week to reduce the small business tax rate to 9%, indicates a change in tone from the federal government,” said Francis. “There has been much uncertainty since the original proposal was presented this past summer and our elected officials clearly heard those concerns from our members. We’ll continue to analyze the details of the new proposal and what the implications are for Chamber members but this is certainly a step in the right direction.”