The Coalition for Small Business Tax Fairness is urging Finance Minister Bill Morneau and the Department of Finance to amend the new rules related to passive investment income announced in federal budget 2018.
In a statement issued May 28, the Coalition says that the government previously promised that passive investments currently held by small businesses would be grandfathered under the new rules. “However, this will effectively no longer be the case as past passive investments will be used to shut out some small businesses from accessing the small business tax rate going forward,” says the coalition, which is concerned that these small businesses “will be taxed like big business, significantly increasing their tax bills in 2019.”
The Coalition for Small Business Tax Fairness, which is made up of 70 organizations, was created last summer to fight the federal government's proposed tax changes, which were announced last July.
Penalizes businesses that have been compliant
"The proposed rules penalize businesses that have been compliant with the law and acted prudently in the face of economic uncertainly and risk by creating a capital reserve through passive investments," said Dan Kelly, president of the Canadian Federation of Independent Business (CFIB). "We're asking the government to keep the promise they made to the small business community and protect firms with previous passive investments from the new rules before the budget is signed into law."
The Coalition is recommending that the government not go forward with the changes to the passive investment rules. But, if it does decide to proceed, then it urges the government “to work with the Coalition and tax professionals to ensure that existing passive investments are not included in the formula in determining eligibility for the small business deduction going forward.”
Implement a more gradual “grind”
The Coalition also recommends that the government implement “a more gradual ‘grind’ in eliminating the benefit of the small business tax rate; raising the threshold where passive investment income begins to affect a firm's access to the small business rate from $50,000 to $100,000 to exempt more small firms,” and “indexing the $50,000 and $150,000 exemption limits to inflation to prevent small businesses from being subject to bracket creep on the taxation of their passive investment income.
To learn more, consult the Coalition’s letter to the finance minister.