It’s said two things are certain in life: death and taxes.
But, come tax time, small businesses can also be certain that tax rules are ever changing.
The best advice for any small business, said John Marshall, a corporate and personal tax specialist with Marshall and Associates Inc., is to pay attention to the ever-adjusting landscape, understand how new tax rules will effect their operations and hire a good accountant.
“Business people, more than ever, need to utilize every possible legitimate deduction and ensure they keep good records, including the use of a good bookkeeping computer-based program, plus be diligent and concentrate on controlling costs, AR/AP (accounts payable and accounts receivable) and cash flow, which maintains profitable margins,” he said.
There was no change to the 15 per cent federal general corporate income tax rate for 2017. As well, there was no change from the current 10.5 per cent federal small business tax rate applicable to the first $500,000.
The federal Liberal government took heat in the fall for changes to several tax rules, including eliminating provisions allowing ‘income sprinkling’, where income, such as dividends or capital gains, could be passed to family members who are subject to a lower tax rate.
The changes, approved in December, are in effect for the 2017 tax year.
Marshall said none of his clients were impacted by changes. He said the federal government watered down its proposal and what was ultimately approved ended up targeting high-income professionals. According to Marshall, prior to the changes a person who earned $350,000 would have ended up paying a tax rate of around 20 per cent. As first proposed, he said the changes would have brought that rate up to as much as 50 per cent, but changes to the proposal that were ultimately approved mean that rate is closer to 35 per cent.
“This is with a cautionary note that each case has to be determined on its own,” said Marshall.
A series of changes that were included in the 2017 federal budget are in effect for small businesses ahead of this month’s tax deadline, while a few are being implemented incrementally over the next two years.
According to Marshall, most of the changes impact larger businesses.
“My clients, most of whom operate a small business as either a sole proprietor or a corporation, are for the most part not overly affected by these proposals and the final versions that are now part of the taxation process,” he said.
For 2017, the federal government eliminated the ability of certain professionals, such as accountants, dentists, lawyers and medical doctors, to be able to exclude the value of work in progress from calculating income from a taxation year. This change is being phased in over two years to mitigate the impact of the changes on taxpayers. Such ‘bill-based’ accounting allowed professionals to defer tax by deducting costs associated with their work without recognizing it in the year in which they claim the income.
Other changes apply to investments and tax planning measures, including the introduction of a new regime for derivatives that applied to all taxpayers, including financial institutions. The federal government also introduced measures to eliminate so-called ‘straddle’ measures, which allowed a combination of two or more derivatives or other transactions that would essentially offset each other.
Ultimately, Marshall said one of the biggest tax changes, which will be felt across the economy, is the introduction of a Provincial carbon tax.
He said the tax has directly increased operating costs for businesses, and as a result reduced profits, particularly for those that use goods and services where the carbon tax is added and where the effects of the recession are still lingering.
“We are all affected by tax changes, but the majority of small businesses (proprietor and incorporated) will be most affected by rising costs created by the provincial carbon tax,” said Marshall.
