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The Government of Canada released its 2018 Budget this afternoon, focusing on a fiscal plan meant to strengthen the economy by promoting gender equality and bringing more women into the workforce. Key themes in the budget also include boosting science and innovation, improving living conditions for Indigenous people, and fortifying Canada against cyberattacks.
CFA has been an active participant in pre-budget consultations leading up to its release, through a detailed written submission focusing on priorities that we believe will contribute to the overall economic growth and sustainability of franchising in Canada
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Notably, Budget 2018 included much-anticipated details on the remaining pillar of the Finance Minister's 3 part tax proposal, which hasbeen the source of considerable criticism since its introduction. In the summer of 2017, Minister Morneau announced a package of proposed changes to tax rules governing small businesses, which received backlash from the business community, including CFA, who felt the changes would have a significant negative impact, particularly for small businesses.
To ensure the voice of the franchise sector was heard, CFA joined the Coalition for Small Business Tax Fairness, a group of 75 like-minded business organizations who collectively shared our concerns with Minister Morneau. Through consultation responses, an in-person deputation to the Senate Standing Committee on National Finance, and over 300 letters sent to Members of Parliament across the country through our 'Email your MP' campaign, CFA was able to effectively amplify the concerns of franchising.
As a result, Budget 2018 includes a revised approach to passive investments, increasing the threshold of $50,000 from the government's original plan to $150,000. Under the revised proposal, when companies earn between $50,000 and $150,000 in a given year from passive investments, a reduced amount of their active business income will be eligible for the Small Business Tax Rate. The reduction will occur on a straight-line basis, with eligible income decreasing by $5 for every $1 of passive income above the $50,000 threshold.
This builds on the previously announced reduction of the Small Business Tax Rate to 10% in January 2018 and 9% in January 2019, abandonment of proposals focusing on 'converting a private corporation's regular income into capital gains' (learn more), and changes to the proposals focusing on 'income sprinkling in private corporations' (learn more).
While the most recent tax proposals represent an improvement from the Minister's initial plan, CFA will continue to work with the Ministry of Finance to ensure the voice and concerns of the franchise community are well understood as the government moves forward with implementation.
If you have any questions, comments, or concerns please contact Ryan Eickmeier, Vice President, Government Relations & Public Policy at [email protected] or by phone at 416-695-2896 ext. 297.
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