Article

Budget 2018: Stability is in this year

New opportunities for private companies

By Mike Runia, Managing Partner, Deloitte Private

Canadian businesses can breathe a little easier with Budget 2018. The general consensus is that business leaders’ worst fears did not materialize in what turned out to be a no surprises, stay the course document. While “it could have been worse” is hardly a ringing endorsement, businesses can look forward to minimal disruption from a corporate tax point of view. There’s even some positive news in this budget, along with opportunities that Canadian companies would do well to take advantage of.

Many of the most unwelcome changes proposed last summer have been abandoned. The capital gains tax rate was not raised, as many had feared. While the Government did introduce changes to the tax regime when holding retained passive assets, the changes are not as severe as proposed last summer. Of course, 22,000 angry letters might have had something to do with that. After all, the last thing the federal government wants heading into an election year is to be perceived as being anti-business. Changes previously announced relating to income splitting were confirmed in Budget 2018 and these changes will have a negative impact on many business owners. However, the rules introduced in December are a bit easier to apply than the original proposals.

The good news is that the government has struck a balance between resolving what it considers to be policy issues without creating significantly more complexity in the tax system. The rules around income sprinkling and passive assets will be simpler to apply than the original proposals. The corporate tax rate for small businesses has dropped. And there’s still an ability to defer tax even when the general corporate rate is applicable to business income. The rules should allow business owners to continue to more effectively save for retirement and to provide for future business investment.

Equally important, the federal government has announced a number of new grants. All Canadian companies should be looking at how to access this money. Deloitte Private can help business leaders find the right grants and facilitate their delivery.

Overall, Budget 2018 signals a year of minimal change, and ensures Canada will continue to be a great place for privately owned businesses. The Federal Small business tax rates are still low and will drop even further next year to 9%. The general corporate rate is still 26%, roughly equivalent to the US rate. And R&D tax incentives here are much better than what’s available in the US. With an election next year, we can expect this same level of stability for the foreseeable future.

There’s much more to be said about Budget 2018 and how it will affect your business going forward. Our tax leaders have additional deeper analysis, which you can access here.

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