OTTAWA, Ontario—A Liberal campaign promise to cut the small business income tax rate appears to have itself landed on the chopping block, blindsiding the group that represents hundreds of thousands of business owners across the country.
Rather than continuing the legislated decrease towards a nine percent rate in 2019, the Liberals are fixing the rate at its current 10.5 percent on the first $500,000 of active business income. Additional cuts are being deferred indefinitely.
The move contradicts a Liberal campaign promise to stick to the existing schedule, set out in the previous Conservative government’s last budget.
Finance Minister Bill Morneau, who billed the budget as a good one for small businesses, did not directly answer a question on why the government decided to abandon the promise.
“We know that for small businesses the most important thing is to have an economy that’s working,” he told a news conference ahead of his budget speech.
“That’s what we want for Canada.”
Morneau said the Liberal budget’s focus on the middle class benefits small business because it will provide them with more customers, as it will give more people more money to spend.
But Dan Kelly, president of the Canadian Federation of Independent Businesses, said many of those small business owners are middle-class Canadians who will forfeit millions in earnings without those tax cuts.
“Cancelling that, I have to tell you, is puzzling and, from my perspective, alarming,” Kelly said.
It’s not the only slap, he added—the Liberals had also promised a employment-insurance holiday for businesses that hire students, but that was also a no-show.
“It is a very troubling budget, one of the worst budgets we’ve seen in the last decade or two.”
During the election, all three main parties were actively courting the support of small business by sticking to the Tories’ small business tax rate plan.
But then-Liberal leader Justin Trudeau created a minor controversy when he suggested small businesses set up as private corporations were a way for people to avoid paying taxes.
His political opponents pounced, with the NDP calling on him to apologize and the Conservatives accusing him of saying all small businesses were nothing but “tax scams.”
The CFIB said there was no evidence to support Trudeau’s assertion, but Liberals countered that they were relying on studies by economists to back up their claim.
Despite that, they pledged to lower the rate, while ensuring its benefits would go to small businesses and not wealthy individuals.
Kelly said they appear to have done some of that in the budget by tightening the rules on allowing investment income to qualify for the small business tax rate and removing the ability of partners in a business to individually claim that rate.
Kelly, as well as the Canadian Chamber of Commerce, said they are also troubled by the reference in the budget to increasing the Canada Pension Plan.
“As businesses struggle, this added pressure could slow down job creation and investment,” the chamber said in a statement.