Small Business Tax Changes in 2019

Just as they do almost every year, a few rules have changed since the last time you filed taxes for your small business. Not only that, we’re already operating under a new set changes that apply to 2019, and next year’s return. If you’re been struggling to stay on top of what’s new, and what it means to your upcoming tax filing, read on!

Small business tax rate

At the start of 2018, the federal small business tax rate dropped by half a percentage point to 10 percent, meaning you’ll be paying a little less tax on your earnings from the past year. And there’s more good news: the rate fell again to nine percent on Jan. 1, 2019, meaning the savings will be even bigger next spring. According to estimates from the Canadian Federation of Independent Business, the new lower rate will deliver an annual average savings of $7,000.

Passive income

On the flip side, the government has taken steps to limit tax exemptions on so-called passive income, the earnings generated by investments held within private corporations. Rents, royalties, dividends and interest are all sources of income subject to this change.

For 2018, small business owners can shelter $50,000 in passive income. Access to favourable small business tax rates is gradually reduced on the next $100,000 of additional passive income, and the general tax rate of 15 percent applies on income above $150,000.

Dividend tax increase and family trusts

Also new for the 2018 tax year is a steep rise in the tax rate on dividends paid to family members who are shareholders in a private corporation, a change that could have significant effect on some small business owners. If the recipient does not work for the business, or is not a major investor, the dividend will be taxed at the highest marginal rate. This is part of a broader effort by the government to crack down on a practice commonly known as ‘income sprinkling.’

If you think one or more of these changes could have an impact on your 2018 taxes, it’s important to seek the advice of a tax professional before filing your return. You don’t want to compromise the financial health and overall well-being of your small business by filing a false return or running afoul of Canada Revenue Agency’s rules.