Taking advantage of federal budget measures.

• Author: Bissonette, Laurie
• Position: Business Sense

Laurie Bissonette

FCPA, FCA

Partner with KPMG Enterprise [TM]

Many expected that this year's federal budget--the last before the fall election--would contain some additional tax breaks and incentives for Canadians. So it was no surprise when the budget, which was announced April 21, did feature some welcome news for business owners that could help ease their tax bill over the next several years. Among other important

changes, the budget proposes to gradually reduce the small business tax rate by 2 per cent by 2019 and announces consultations to consider expanding the types of income eligible for this lower tax rate. The budget also extends tax relief on manufacturing and processing machinery and proposes new rules to make donations of certain shares of private corporations and real estate exempt from capital gains tax.

If you own a small business, you could see a small tax savings next year as your tax rate on qualified income is reduced to 9 per cent (from 11 percent) by 2019, at a drop of 0.5 per cent per year. This lower small business income tax rate deduction applies on the first $500,000 of qualified active business income for Canadian-controlled private corporations. But the budget also proposes to bump up the federal effective tax rate on non-eligible dividends. Those who pay taxes in the top bracket will see the current 21.2 per cent rate jump to 21.6 per cent in 2016, with further increases each year until it reaches 23 per cent in 2019.

The government also announced consultations to reconsider whether certain kinds of businesses could be eligible for the lower small business tax rate on income derived from property, such as interest, dividends, rents and royalties. If you own a campground, self-storage facility or other business that primarily earns income from property, you'll want to follow developments in this area in the upcoming year.

Due to the impending expiry of a CCA class that provided a tax break on purchases of manufacturing and processing machinery and equipment for businesses, the budget also introduces a new accelerated capital cost allowance (CCA) for these assets. Generally, machinery and...