Ottawa will announce plans today to cut the small business tax rate from 10.5 per cent to nine per cent on Monday, CBC News has learned, as it attempts to quell a backlash to proposed tax reforms that have stung the Trudeau government.
The new plan will be 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 aimed at deflecting 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.
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 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 attacks from Conservatives were bolstered by news that, for two years, Morneau failed to disclose to the federal ethics commissioner that he and his wife are partners in a private company that owns a family villa in southern France.
Morneau will also address some changes to the controversial tax reform proposals themselves.
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 that are unrelated to the company and would curb the ability of business owners to convert regular income of a corporation into capital gains.
Morneau had already publicly suggested that all three pillars of the plan could see adjustments.
The finance minister won’t necessarily be walking into a warm room Monday morning. Some Liberal MPs have been the most critical of the proposed changes.