The Canadian Press
OTTAWA–The federal Liberal government says it will lower the small business tax rate to 10 percent in January and to nine percent in 2019, the start of a week-long effort to stanch the bleeding from a self-inflicted political wound.
Prime Minister Justin Trudeau also said the government won’t be changing the lifetime capital gains rule, which allows business owners to convert regular income of a corporation into capital gains, which are taxed at a lower rate, as the Liberal face widespread criticism for a package of controversial tax-reform proposals.
The small business tax rate currently is at 10.5 percent and applies to the first $500,000 of active corporate income.
The government says lowering the rate will provide entrepreneurs with up to an additional $7,500 per year.
Combined, the government estimates the tax reductions will reduce Ottawa’s revenues by about $2.9 billion over five years.
Trudeau campaigned in 2015 on a promise to reduce the small business tax rate to nine percent from 11 percent over three years.
But he announced in Budget 2016 he would freeze the rate at 10.5 percent, cancelling in the process a legislated reduction to nine percent instituted by the previous Conservative government.
Faced with vocal opposition to tax proposals, the Liberal government now is reviving the nine percent promise.
In recent weeks, doctors, lawyers, accountants, shop owners, farmers, premiers, and even some Liberal backbenchers denounced the reforms, contending they would hurt the very middle class Trudeau claims to be trying to help.
The changes are aimed at more clearly targeting the reforms at wealthy individuals who have used incorporation of small businesses to gain what the government maintains is an unfair tax advantage.
They’re also meant to address concerns the reforms disproportionately willimpact women, inhibit the ability of small business owners to save for a rainy day, and make it impossible for farmers, fishers, and others to pass their businesses on to their children.
Earlier today, the opposition Conservatives attacked Finance minister Bill Morneau for what they described as the Liberals’ flip-flop.
“History of small biz tax cut: Tories passed it. Lib platform promised to keep it. Lib budget cancelled it. Now Libs promise to reinstate it,” Conservative MP Pierre Poilievre wrote on Twitter.
Morneau has acknowledged changes are required to address the concerns his reform proposals have triggered.
The Liberals’ popularity has taken a hit in some opinion polls amid the backlash to the proposed reforms, first announced in mid-July.
The damage control effort began today with the briefing for Liberal MPs, some of whom have been among the most critical of the proposals.
Backbenchers emerged from the meeting saying they feel satisfied the government has listened to their concerns, although they were not given details of the changes that are to be unveiled in a series of announcements later in the week.
