Update: Oct. 18: Kelowna-Lake Country MP Stephen Fuhr says while the $800,000 lifetime capital gains exemption will not be touched, the government has yet to decide what it will do about converting regular income into capital gains. (An earlier version of this story said the government had its proposal to stop the conversion.)
Meanwhile, on Wednesday, federal Finance Minister Bill Morneau announced another tweak to the proposed changes to the small business tax program.
The system will now allow a threshold of $50,000 of passive income to be sheltered. That, he said, will help business owners put away money for retirement and parental or maternity leave.
He said the move will mean only three per cent of the most wealthy will be affected by the new higher taxes in that specific regard.
Original story: Embroiled in a Canada-wide outcry over planned changes to how the tax system will treat small, Canadian-owned businesses in the future, the federal Liberal government announced Monday it will unfreeze its stalled 2015 election promise to lower the small business tax rate to nine per cent in two moves over the next 14 months.
Kelowna-Lake Country Liberal MP Stephen Fuhr, who along with all his Liberal caucus colleagues was called to an emergency meeting in Ottawa Monday morning, said it’s clear the government has been listening to the concerns of Canadians—and Liberal MPs—about the planned tax changes.
“We are in a better place with the substantial change announced today and the changes that are to come, than we were last week,” said Fuhr.
The local MP, who was criticized by his Conservative counterpart Central Okanagan-Similkameen-Nicola’s Dan Albas last week for not voting to extend the 75-day consultation period put in place by the Liberals to discuss the tax changes, said while he couldn’t divulge what is coming, MPs were told moves will be made to alleviate some of the concerns expressed by a number of small business owners, farmers and those who have “passive” investments in their businesses.
“I think it shows they were listening,” said Fuhr.
Prior to the Liberal’s caucus meeting in Kelowna earlier this summer, Fuhr held a round table discussion about the the proposed tax changes and heard loud and clear there were major concerns in his own riding.
At the time, he vowed to take those concerns to the upcoming caucus meeting in Kelowna.
And he was not alone. Several other Liberal MPs also spoke out against the proposed small business tax changes.
Locally, the Kelowna Chamber of Commerce was very vocal in its opposition.
On Monday, it issued a news release saying it welcomed the plan to reduce the small business tax rate and revise the planned changes.
“The new measures proposed today, while not perfect, are more balanced and address a number of the issues that we have raised over the past several weeks,” said chamber president Tom Dyas. “The Kelowna Chamber will be vigilant though on the details and application, to ensure they actually deliver on the revisions they have mentioned today.”
The chamber said it appreciated the finance minister’s call for further input from Canadian businesses.
Fuhr said the small business tax rate, already the lowest of the G7 nations, is a real advantage for all Canadian small businesses. And lowering it further makes that advantage even greater.
He said it was made clear to MPs Monday the government is not going to touch the $800,000 lifetime capital gains amount in place for business owners looking to dispose of their small Canadian-owned corporations and he added he believes something will be done to address “passive” investment in a business where money is held in a company but not used to operate the company.
“Often it’s a savings tool and an investment tool that offsets future debt,” said Fuhr.
He said 85 per cent of small Canadian-controlled corporations do not have passive investments and of the remaining 15 percent, only three per cent control 90 per cent of the wealth.
Following the caucus meeting in Ottawa Monday, Fuhr said he believes the government is headed in a better direction now and added the changes are a direct result of consultations held during the 75-day period.
The government’s original proposal had aimed at limiting the ability of incorporated business owners to shift income among family members to benefit from their lower tax rates, shelter money in passive investments within a corporation and convert income into capital gains, which would be taxed at a lesser rate. The last measure has now been dropped.
While no details were made public after the briefing to MPs, some emerging from the caucus meeting said they thought farmers and fishers will also be pleased with other changes that have yet to be announced.
Last week Albas held a small town hall-style meeting in Kelowna where he told 30 supportive people in attendance that he will fight against the proposed tax changes despite any tweaks the government makes.
Yesterday, his party’s leader, Andrew Scheer, said the changes announced by the Liberals were only made because of the pressure from the outrage expressed by Canadians towards the original proposals.