Liberal government to reduce small business tax rate

October 16, 2017 8:10 am

Ottawa will announce plans today to cut the small business tax rate from 10.5 per cent to nine per cent today.

The Harper government had planned to drop the business rate to nine per cent over four years, and the Liberals promised to continue the four year reduction plan before the 2015 election, but froze the rate at 10.5 per cent after being elected.

The new plan was presented at a national caucus meeting at 8 a.m. ET.

Finance Minister Bill Morneau's move to reduce the tax rate paid by small businesses is in response to criticism of proposed tax reforms that have angered small business owners, who said the changes would hurt the same middle-class Canadians the government is purporting to help.

Some premiers and Liberal backbenchers also objected to the reforms.

Morneau will also announce changes to the tax reforms he first announced this summer.

The proposals were unveiled in mid-July, but it took about a month for the backlash to materialize. Since then, the Liberals' popularity has taken a hit in some public opinion polls.

The first formal announcement will happen at an Italian restaurant in Stouffville, Ont., later this morning.

All three major parties pledged to cut the tax rate in the run-up to the last election, and the previous Conservative government had begun cutting it in its last budget.

The Liberals froze the rate at 10.5 per cent until they could close loopholes that they said allowed the wealthy to use incorporation as a small business to unfairly reduce their income tax burden.

The government's original plan included restrictions on "income sprinkling" — the practice of transferring income from a business owner to a child or spouse who would be taxed at a lower rate. It also proposed limits on the use of private corporations to make passive investments and would curb the ability of business owners to convert regular income of a corporation into capital gains.