Big Changes for Small Business (Part 4 of 4)

On December 15th, 2016, Royal Assent was given to C-29, a budget implementation bill. C-29 means big changes for companies using the Small Business Deduction. Previously, I discussed the Small Business Deduction, who uses it, and what C-29 changed. Here,  I will briefly discuss the effects on small businesses. As always, consult a tax accountant to review your situation and for tax planning.


It used to be the biggest issue was Association: if two companies had 25% or more ownership in common, they were Associated, and had to share the $500,000 Small Business Deduction. Now, Specified Corporate Income goes deeper than that. If a husband owns one business (HusbCo) and a wife another (WifeCo), and HusbCo provided services to WifeCo, the income would be eligible for the Small Business Deduction. Not anymore; it is Specified Corporate Income. The two owners are related, so no Small Business Deduction.


The same company can now use the Small Business Deduction on income from other corporations, or from individuals, including his wife. The problem lies between corporation-corporation interactions. So a service to his wife is eligible for the Small Business Deduction, but not a service to his Wife’s company. This is a problem for those who use corporate-corporate interactions as a means of building business.


Things may get complicated when one’s business serves large CCPCs. Let’s say your business serves a company that employs 100 people. Some of those employees are shareholders. One of those shareholder-employees is your brother or spouse. The income you get from that CCPC is not eligible for the SBD.


Now what about stock holdings in CCPCs that you don’t know about?  Relatives don’t always tell their family what they own. One may get a nasty surprise with a CRA audit. You discover that you used the SBD on income from a company of 100 employees that your estranged brother partially owns as a shareholder/employee. Years of back taxes, and penalties and interest are due.


In sum, C-29 is a relatively large change for small businesses. The reporting requirements have surged. If one has a corporation serving another corporation, one has to be responsible for knowing whether one is related to any owner of a CCPC. Keeping track of all that will be a burden on Small Business Owners.