Canada: 2015 Election Results: What The Liberal Tax Platform Could Mean For You And Your Business

With the election of a majority Liberal government on October 19, there's no doubt that we will see a number of tax changes over the next four years.

The Liberal platform has proposed a number of tax measures. Although we are not certain when and if they will all be implemented, two key items are worth highlighting.

Corporate measures

The 2015 federal budget proposed a reduction in the small business tax rate from 11% to 9% over a four year period. The Liberal government supports this tax reduction; however, they recently stated the following:

"As we reduce the small business tax rate to 9 percent from 11 percent, we will ensure that Canadian-Controlled Private Corporation (CCPC) status is not used to reduce personal income tax obligations for high-income earners rather than supporting small businesses. Michael Wolfson from the University of Ottawa estimates that approximately $500 million per year is lost, particularly as high-income individuals use CCPC status as an income splitting tool."

Although it is unclear how they intend to address the concern for high-income earners, one possible response could be to amend the definition of the types of companies that qualify for the small business deduction (SBD) and, therefore, the small business rate. Recently, the Quebec government introduced measures1 that would amend the current SBD eligibility criteria for Quebec taxation purposes. In addition to the current requirements, the corporation must either

• employ more than three people who work on a full-time basis throughout the year, or
• be a corporation in the primary or manufacturing sector. This is a corporation where at least 25% of its activities are in the primary sector² or the manufacturing and processing sector.

Most professional corporations, and certain other corporations, will not qualify under these new requirements. If the new Liberal government adopts measures similar to the new Quebec measures, corporations that do not qualify for the SBD will be subject to a 15% federal corporate rate on all active business income.

Footnotes

1. Applicable for taxation years beginning after December 31, 2016.

2. The primary sector of the economy is the sector of the economy making direct use of natural resources. This includes agriculture, forestry, fishing and mining.

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