New Passive Income Rules a Step Forward, May be Insufficient to Help Small Firms Grow

New Passive Income Rules a Step Forward, May be Insufficient to Help Small Firms Grow

Ottawa – The Canadian Federation of Independent Business is pleased that the federal government made positive changes to its passive income rules, but warns that the amendments may not be sufficient to meet the needs of many small firms working hard to become medium-sized.

The revised proposal, announced by Finance Minister Bill Morneau last week, allows small businesses a $50,000 annual threshold on passive investment income.

“It is good news that the government is beginning to recognize the many important roles passive income plays in the life of a business and its owners,” said CFIB President Dan Kelly. “If administered properly, this change will be helpful in allowing many small firms to continue to use passive income to ride out challenging times, save for investments or set aside money for a leave or retirement.”

Changes might discourage growth

However, while the $50,000 annual threshold will help small firms that remain small, it may be too low for small firms saving to grow and create more opportunities. Canada has a dearth of medium-sized businesses and the size of the threshold may not be enough to help businesses looking to get to the next level,” Kelly added.

CFIB is pleased that draft legislation will not be introduced until the 2018 budget.

CFIB seeks more clarity about how this change will be implemented, including whether the threshold will be indexed to inflation.

“These are incredibly complicated tax changes with many potential unintended consequences,” Kelly said. “When the entire package of revised proposals is out later this week, we will review them with tax professionals to provide an overall assessment on the net impact for Canada’s small business owners.”

CFIB will appear before the Standing Senate Committee on National Finance this evening to express its members’ concerns about the tax changes. Corinne Pohlmann, Senior Vice-President, National Affairs, will present data showing that the original tax proposals could further complicate the tax system and make things more difficult for many middle-class business owners. 

CFIB is Canada’s largest association of small and medium-sized businesses, with 109,000 members across every sector and region.