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April 16, 2024

Tax Perspectives

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Please note that these publications may not be up-to-date as taxation matters are subject to frequent changes.

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Supplement 2003

On February 18, 2003, the Minister of Finance released a number of proposed tax changes. We summarize the more significant ones in this commentary.

Small Business Deduction

Canadian-controlled private corporations (CCPC) have enjoyed a reduced federal tax rate on up to $200,000 of active business income annually. The amount eligible for this so-called small business deduction was set at $200,000, and has not been increased since the 1980's. The budget proposes to increase this amount by $25,000 per year, starting in 2003, to reach $300,000 by January 1, 2006. For taxation years straddling January 1, the increased amount will be pro-rated.

It has been general practice to keep active business income of a CCPC to under $200,000 annually. Now, the practice will be to match the increased limits. The Province of Ontario currently has a threshold of $300,000 for its small business deduction. Therefore, as of January 2006, the federal and Ontario rates will be in harmony. Other provinces have similarly higher thresholds, with British Columbia and Saskatchewan at $300,000; Alberta, at $350,000 (moving to $400,000); and Manitoba and New Brunswick moving to $400,000.

Clearly, the federal change was long overdue and is welcome. A bolder approach would have been even more welcome.