Tax Changes You Need to Know for 2017
Tax season can be overwhelming for small business and agribusiness owners, even for those who are organized and keep their books in order.
With business owners more concerned about their day-to-day operations, it can be difficult to stay on top of all that information. That’s because Canada’s tax laws change every year.
And there have been some big changes to Canada’s tax laws as of January 1, 2017.
Below are two of the biggest changes that could affect Canadian small business owners this tax season.
Tax Changes to the Small Business Deduction (SBD)
A number of years ago, the government introduced the small business deduction (SBD) in an effort to foster development of small and medium-sized businesses. Since then, the SBD has undergone a number of changes at both the provincial and federal levels.
All Canadian-controlled private corporations (CCPCs) are entitled to claim a small business deduction on active income earned in Canada.
As of January 1, 2016, the SBD provided for a 10.5% federal tax rate on CCPCs. The previous government had announced a further decrease to this rate, which was to occur from 2017 to 2019, and bring the rate down to 9%.
But the new government announced in June 2016 that it was keeping the SBD rate at 10.5% in 2017 and coming tax years. That said, only a limited amount of income, qualifies for this deduction; the current federal limit is $500,000.
All provinces have a small business deduction rate, but the rate and amount of income that qualifies varies from province to province.
A small business meets the criteria for the SBD if, during the taxation year, its employees worked at least 5,500 hours and, if during the previous tax year, worked at least 500 hours.
Canadian business owners who want to claim the SBD must ensure they meet the federal and provincial criteria.
Planning to Sell Your Business?
Another major tax change in 2017 could affect the tax on the sale of your business.
In the 2016 Federal Budget, the government made some big changes to the tax legislation that will affect the after-tax proceeds that business owners can keep from the sale of their business assets.
Unfortunately, the new tax legislation will mean that business owners, big and small, will gain less from the sale of their business assets as it is now fully taxable as investment income.
The new rules impact Eligible Capital Property (ECP). ECP includes intangibles, including, trademarks, licenses, customer lists, franchise rights, and goodwill.
For many Canadian small business owners, goodwill is the intangible value of their business, associated with brand recognition and reputation. It is one of their biggest assets.
Currently, 50% of the proceeds of the sale of goodwill are taxed as active business income. The other 50% is available for tax-free distribution as a dividend. Depending on how the proceeds are allocated, this can result in significant tax deferral on personal income taxes.
Under the new rules, the seller can no longer take advantage of the tax deferral. Gains on the sale of goodwill are now taxed as investment income in the form of capital gains. As of January 1, 2017, the tax rate of 6.5% to 9.0% that was applied to a goodwill gain increased to a tax rate of between 25% and 27%.
FBC, Helping Small-Business Owners Prepare Their Taxes
Preparing and filing taxes can be frustrating at the best of times. And Canada Revenue’s ever-changing tax laws don’t make it any easier. With so much to know, chances are you’re missing out on claiming tax deductions and credit. If you find tax preparation difficult or time consuming, call the professional tax consultants at FBC.
Since 1952, FBC has worked exclusively with small business owners and Canadian farmers, helping them minimize their tax burden and maximize their assets. Thanks to our comprehensive understanding of Canadian tax law, we at FBC are able to provide small business and agribusiness owners with a broad range of services tailored to their individual needs.
For more information on how an FBC tax consultant can help your farm or small business prepare and file your annual income taxes, call us today at 1-800-265-1002 or submit an online form and an FBC tax specialist will contact you at your earliest convenience.