Interesting Budget Changes Planned for Small Business Owners

If you are a small business owner taking dividends out of your business, the federal budget has handed you a good news/bad news story.

First the bad news: the biggest revenue gain in the budget will be an increasing tax burden on  non-eligible dividends. Over $2.3 Billion will be raised as the gross up is adjusted downward to 18% with an offsetting dividend tax credit of 11% .

But on the good news side,  you’ll get a higher tax free windfall when you sell your qualifying small business corporation. The Capital Gains Exemption you may qualify for has increased  to $800,000 in 2014 and will be indexed thereafter. 

Part time farmers who rejoiced at their recent win at the Supreme Court (The Queen v. Craig 2012 SCC 43) which established a test to permit the full deduction of farming losses where a taxpayer places significant emphasis on both farming and non-farming income, were dealt a blow. The restricted farm loss rules have been reinstated in this budget; albeit increased to allow the first $2500 of the loss plus ½ of the next $30,000.

There are also changes for investors: safety deposit boxes will no longer be deductible, and those investors who participated in leveraged life insurance arrangements and “10/8 strategies” which structured investments that allowed for borrowing against a life insurance policy to create an annual interest-expense deduction until the death of an individual whose life was insured, have been curtailed. 

There are incentives for donors, and manufacturers, some GST breaks for those paying for health care services, more bad news for participants in charitable donation schemers, and a significant incentive for those who snitch on international tax cheats. The federal government is just $26 million away from balancing books, still targeting the year 2015 to return to balance. 

The details of these and other personal, corporate the sales tax measures following in Knowledge Bureau’s Special Budget Report and in upcoming stories and analysis in these electronic pages.