Merchant Blog

Blog Article: Changes to Small Business Taxation

With a new Canadian federal government comes the implementation of new policies – social, international, and most importantly fiscal. Among the most talked-about changes for the everyday financial consumer was Monday’s announcement that the Tax Free Savings Account (TFSA) annual contribution limit would be reduced to $5,500, corresponding with a tax break on income earned between $44,701 and $89,401.


For the owners of independent and small businesses, new government policy could also have a significant effect on financial preparedness, planning and asset management. In his outline for the new plan, the Prime Minister noted a particular objective: namely, that “Canadian-Controlled Private Corporation (CCPC) status is not used to reduce personal income tax obligations for high-income earners.”

According to a recently published paper in the Canadian Tax Journal (Policy Forum: Mountains and Molehills— Effects of the Small Business Deduction Ted Mallet,) businesses with 20 employees or fewer bear almost three quarters of the country’s tax compliance costs, which are between $13 billion and $19 billion. Limited financing options for new small businesses also underscore the need for a preferential tax rate. “In addition, the preferential tax rate helps offset Canada’s high tax and compliance costs for new and small businesses,” Mallett notes.

The change to small business taxation has a direct relationship with one of the most important challenges facing small and medium-sized firms: namely, finding appropriate sources of funding and financing, especially when circumstances such as size or length of time in operation do not allow for a business to seek out loans from major banks. Easing the burden of taxation on businesses can be seen as an offsetting measure against the difficulty of finding financial support: in light of this, the new federal government has publicly committed to reducing the small business tax rate from 11 to nine per cent by 2019.

On this subject, Mallet observes that “The vast majority of small and new ventures must rely on their own assets and to some extent those of family and acquaintances. Preservation or growth of business capital though retained earnings is really the only other source of financing—and that is generally a slow and inconsistent process.” Developments in the financial technology sector, including the efforts made by Merchant Advance to bring a merchant-friendly form of access to financing to the market, supplement and assist these goals.


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