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To: All CHBA Members

Following weeks of harsh criticism of its proposals to change the small business corporate tax system, the federal government has announced this week significant changes to its initial plans.

These announcements show that the tremendous efforts by CHBA, its individual members, and other like-minded organizations have had their intended effect, and represent significant wins for CHBA members.

With CHBA actions ranging from submissions to the government, appearances before the House of Commons Finance Committee, pre-budget consultations, engaging MPs, action in collaboration with the Coalition for Small Business Tax Fairness, submission of data from a CHBA member survey, action by local and provincial HBAs, and active engagement by members across the country, it is clear the strong voice of the Association has had the desired impact.

More details still need to be disclosed, and continued advocacy will be required, but here’s where we are at this point:

  • The Small Business Tax rate will be reduced to 10% on January 1, 2018, and then fall to 9% on January 1, 2019—the Liberals had backed away from this campaign commitment, so its reinstatement is clearly a reaction to the pushback over their proposed corporate tax changes.
  • They have eliminated their proposed changes to the lifetime Capital Gains exemption aimed at private corporation owners—an important retraction.
  • Income sprinkling restrictions will go ahead, but ‘meaningful contribution’ by adult family members will be expanded beyond just day-to-day operations and include investors.
  • Only passive income above a new $50,000 threshold will be subject to a new higher tax rate—this is based on a 5% interest rate, and hence aimed at investments totalling more than $1 million; however, in practical terms today, given the low interest rate environment, it could be argued that this will not impact passive investments unless they are valued at over $2.5 million. Also, there will be more consultation on this issue, so there may be room to improve it still further.
  • All past investments and the income earned from those investments will be protected—a key win.
  • Proposals affecting intergenerational transfers will be pulled off the table and reconsidered—this retraction issued today is huge for our industry, replete with family-owned businesses.

Given all of these changes above, it is clear that the government heard our concerns, along with those of like-minded organizations, and is adjusting course accordingly.

While there is still work to do on these issues (as well as changes to mortgage rules coming out of OSFI) , the lower small business tax rate, much more limited scope for higher taxes on passive income, and the complete pull back on changes to intergenerational transfers are big wins.

Congratulations to all who helped this come to fruition. There remains work to do of course, but that is exactly what the Association is here to do!

 

Best regards,
Kevin Lee, CEO
Canadian Home Builders' Association