In a country where the middle class dominates a majority of the population and can earn anywhere between $23,357 up to $55,498 for individuals and $38,755 to $125,009 for families of two or more, it is important to know how tax and tax changes can impact them financially.
Historically, higher earnings in Canada enjoyed an advantageous tax bracket for the highest earners as opposed to higher earners in the U.S. In 2016, Canadians who earned above $200,000 were taxed at 33%. Alternatively, in the United States those who earned between $190,151-$413,350 are taxed at 33% but if you earn above the $413,350 threshold there is the higher 39.6% Tax Rate. One can argue that the highest earner is better off running their business in Canada, assuming Tax minimization was their main objective.
Proposed Tax Reform
As of October 2017, the Government is looking to reduce the small business tax rate to help steer Canada further into a middle-class economy. Currently, the small business tax rate is at 10.5%. Effective January 2018, GOC is looking to reduce this to 10% and further to 9% come January 2019!
The government also addressed that it will commit to ensuring high-income earners and wealthy people do not use the Canadian-Controlled Privation Corporation (CCPC) status to offset income tax that otherwise would have been owed at an individual level as opposed to the corporation level. Their main goal will be to support legitimate small businesses and try to integrate anti-avoidance measures to deflect abuse from high earners.
This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.
Sami Ghaith CPA, CGA
October 26, 2017