Small business owners rejoice! The tax rate for small businesses is going down to 9% for 2019, however, these will not be the only changes that will affect small businesses this year.
A big change in taxes for small businesses in 2019 will relate to how much passive income they receive. In order for businesses to qualify for the small business deduction(SBD) in 2019, they must have earned less than $50,000 from passive income. Every $1 above 50,000 in passive income will result in a $5 decrease to the amount of income eligible to be taxed at the SBD rate. As a result, $150,000 in passive income will result in all of the business’s income being taxed at the higher corporate tax rate.
The bid to change passive income rules comes as a result of the government trying to provide business owners with an incentive to reinvest passive income earned into their business in order to hire new employees. Small business owners that have less passive income and earn a modest income will benefit from these rules while businesses earning a high amount of investment income will be forced to pay higher tax rates.
Small businesses play a large role in the Canadian economy, they make up 98% of all businesses in Canada and they contribute to approximately 30% of Canada’s GDP. They also employ a huge number of people as nearly 70% of employees in the private sector are employed by a small business. It is important that businesses are aware of these new rules which will affect how their income is taxed. Our experts at Softron Tax are highly knowledgeable about corporate tax and are always happy to assist you with your return. Come visit one of our locations to have an expert file your return for you!