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Changes & Impacts of Small Business Deduction 2016

By  James Volmer |   | Posted in " Bookkeeping services, Corporate tax return services, Payroll services, Professional Accountant, Tax consultant, Tax return preparation services "

In March 2016, Justin Trudeau, the prime minister of Canada accompanied by the minister of finance Bill Morneau, declared the federal budget in the House of Commons. The budget was met with mixed responses from various communities. To help our customers stay up to date, we have outlined a few key points surrounding the Small Business Deduction that they may find interesting. Keep reading to learn more.

 

Small Business Deduction

During the Federal Budget Session, Prime Minister Trudeau announced that the government has decided to minimize the access and benefits of The Small Business Deduction. This deduction minimizes a company’s federal tax rate of qualified income to 10.5% up to a five hundred thousand dollar limit.

Under previous legislation, the Small Business Deduction was eligible to businesses with an annual revenue over five hundred thousand dollars with a tax rate of 15%.

Private Corporations under the law of Canada, called (CCPCs) can be subject to serious change due to this modification of the budget.

The new rules are mostly targeted at professionals and will eventually restrain the exponential growth Small Business reduction. Apart from professionals, companies working under these CCPCs and their stakeholders will also bear the results of the change.

According to the government, this law has been exploited in the past. It allowed corporations to escape the Small Business Deduction but this new rule change will make it hard to avoid.

 

Other Major Changes

A CCPC that offers services in a partnership with a private corporation will cease to be a member of the partnership. The CCPC must have a stakeholder who enters the partnership on his own or the company’s interest. The CCPC cannot be related to the stakeholder in any way so it cannot gain control of the total revenue of the business.

The Corporate revenue of a CCPC is not subject to the Small Business Deduction, unless there has been a transfer of funds from any corporations towards the CCPC or vice versa.

 

Key Impacts

Corporations that are part of a group structure like law firms and accounting firms are affected by the rule. They are now barred from structuring their Small Business Deduction using the old legislation.

A service providing CCPC to a real estate developer or any similar private corporations will now share a Small Business Deduction after the rules are implemented.

These new rules are quite strict and will apply to any service providing CCPCs with minimal share interest in the corporation.

To learn more about these legislation changes and how an accounting firm can help you, visit www.jmjaccounting-tax.ca