As of December 2016, Bill C-29 is poised to make major changes to Small Business. In previous blogs, I discussed what the Small Business Deduction is, and what companies can use the Small Business Deduction. In this blog I’ll review the changes, and in the next blog I’ll discuss C-29’s impact. As always, talk to a tax accountant to review your particular situation and to get involved in tax planning.
There is a new definition of Specified Corporate Income (new Section 125(7) of the Act). If two companies held by related owners do business with each other, that income won’t be eligible for the Small Business Deduction anymore. So, one has to track what income comes from people related to you. In other words, if my business makes money suppling relatives, that income is not eligible for the Small Business Deduction. Furthermore, if there is an indirect interest the Small Business Deduction won’t be available for that income. So, for example, if you are a part owner of a CCPC called SnowCorp and your wife’s business supplies SnowCorp with services, the particular income your wife’s business earns from SnowCorp is Specified Corporate Income and the Small Business Deduction is not available.
Also, imagine you and your brother have two companies. They grow big, and you start to build holding companies. That means you and your brother don’t have to share the Small Business Deduction. New Section 256 of the Income Tax Act blocks that structure, and your two successful companies are so successful they can’t use the Deduction anymore.
So far, we’ve covered the Small Business Deduction, who uses it, and the changes C-29 mean. C-29 was given Royal Assent on December 15, 2016. In the next blog, I will discuss more of what the implications of C-29 are.