Jan 2, 2019
Personal Investor: 2019 small business tax break has strings attached
By Dale Jackson
This year, the new tax rate on the first $500,000 of earnings for Canadian small businesses will drop to nine per cent from 10 per cent. Consider it an olive branch from a federal government that has been clamping down in income splitting within family businesses.
But there is one string attached: if the business holds more than $50,000 in what is termed “passive income” that corporate tax rate moves up depending on the excess amount.
Passive income is considered any interest generated from money that sits idle within the business. The move is designed to encourage small businesses to re-invest in things like new equipment, expanding to new markets, or hiring new employees.
Ottawa estimates the average small business with annual income of $107,000 will save an extra $1,600 in taxes. It gives very small businesses with no passive income the biggest advantage.
For many larger small businesses, savings from the lower tax rate could be drowned out by higher taxes on passive income.
