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ARTICLE · 14 SEPTEMBER 2016

New Limits On The Small Business Deduction

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This article is part of a series dealing with draft legislation released for comment by the Department of Finance on July 29th.

CanadaTax
Matthew Rahman
Matthew Rahman
Katherine L. Ratcliffe
Katherine L. Ratcliffe
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This article is part of a series dealing with draft legislation released for comment by the Department of Finance on July 29th.

New limits proposed for the small business deduction (SBD) are raising concerns about the broad discretion granted to the minister to override existing tax rules. 

The SBD results in a preferential federal tax rate of 10.5 per cent on the first $500,000 of active business income earned by a Canadian-controlled private corporation (CCPC). Section 125 of the Income Tax Act (Canada) (ITA) sets out the circumstances in which the SBD is available, and also includes rules intended to limit the ability of taxpayers to multiply the benefit of the SBD. Over time, various corporate and partnership structures evolved which were not subject to these limitations.

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