With the federal election underway, small business owners are asking the federal parties to include certain measures in their platforms, including a reversal of the new rules on passive investment income and an exemption for spouses from the new rules for tax on split income.
The Canadian Federation of Independent Business (CFIB), a vocal critic of recent tax changes for private corporations, is delivering almost 9,000 signed letters from small business owners across the country as it meets with the major party leaders, the organization said in a release on Wednesday.
Small business owners want all parties to “put forward measures that address their biggest concerns around affordability, labour and financing,” said Dan Kelly, CFIB president, in the release. “They’re not asking for government handouts, but they are looking for careful consideration and common sense.”
Under the new passive income rules, the small business deduction is reduced by $5 for every $1 of investment income and reduced to zero at $150,000 of investment income. The rules were introduced by the Liberal government in its 2018 budget, effective in the 2019 tax year.
CFIB is asking the parties to commit to a wholesale reversal of the rules.
The new rules for tax on split income (TOSI) were part of the government’s controversial 2017 tax changes. Effective in 2018, TOSI was expanded to include adults and more types of income.
When a business owner pays dividends to a spouse, TOSI can be avoided if:
- the owner meaningfully contributes to the business and is aged 65 or older;
- the spouse is aged 18 and older and makes “regular, continuous and substantial” labour contributions to the business in the current or any five preceding years (generally, 20 hours per week); or
- the spouse is aged 25 and older and owns at least 10% of the corporation, and less than 90% of its income is from services and it isn’t a professional corporation.
CFIB is asking for the parties to exempt spouses automatically.
Intergenerational business transfers
Another request involves action on intergenerational business transfers. Currently, business transfers to a family member are treated as a dividend, while sales to a third party are treated as a capital gain. As a result, business owners can’t access the lifetime capital gains exemption if they sell to their children.
In its 2019 budget, the federal government committed to reaching out to business owners throughout the year to develop new proposals to better accommodate intergenerational business transfers.
In their letters to the federal party leaders, small business owners are also asking for the following commitments:
- addressing the growing tax burden by slowing down or halting additional CPP increases after 2019;
- reducing the costs of hiring and training by lowering the employment insurance (EI) rate for small firms or introducing an EI holiday for youth between the ages of 15 to 24;
- repealing the federal carbon tax and instead working with each province to find a way to address climate change that minimizes any negative impacts on small businesses;
- cutting red tape in policies, guidelines and legislation, and improving government services; and
- putting in place a plan to balance the budget within the next five years.
Earlier this summer, CFIB released its small business platform with detailed policy recommendations on how these goals can be achieved. The recommendations have been presented to members of Parliament, ministers and senior representatives from all major parties, the release said.