Small Business tax changes for 2017 taxes

 

We’ve rounded up the budget updates that can affect you 2017 business or self-employed income. These changes can affect what you claim, so make sure you’re in the know.

Hang on to more earnings with reductions in the Small Business Corporate Tax Rate

The small business corporate tax rate was reduced in last year’s budget from 10.5% to 10%, effective for 2018 and will be further reduced to 9% for next year.

With corporate tax rates being cut south of the border and the North American Free Trade Agreement being reviewed, there has been pressure on the Finance Minister to reduce the general corporate tax rate in Canada to remain competitive. However, there have been no changes announced yet.

Not working 20 hours a week for the family business? Hold the sprinkles.

Income sprinkling is a strategy some business owners used to split earnings with family members. New rules that came in on Dec 31 now require this income to be taxed at the top rate, unless the family member made a reasonable contribution to the business. One way they can meet this requirement is by working at least 20 hours per week for the company, during the year or any of the previous five years

Changes for those who bill work-in-progress

Beginning in 2018, professionals such as doctors, chiropractors, veterinarians, lawyers, accountants and dentists, will no longer be able to exclude work-in-progress (WIP) from their income. Prior to 2018, these professions only had to account for income when it was actually billed, yet expenses could be submitted when they occurred, giving these professionals a tax advantage.

In 2018, they now must claim WIP income with their costs. The amount can be the same as the costs or a fair value of the work done to date, whichever is lower.

Example

Beth is a dentist. At the end of the year, she had ten patients who she had started, but not finished, a treatment. She will not be billing them until their treatment has been completed. Previously, she did not have to include anything in income with respect to this WIP.

The billing rate for the treatment she has provided so far is $40,000. However, the cost so far in terms of wages and materials has only been $25,000. The amount she is required to include in income as WIP is therefore only $25,000.

Since expenses are deducted in the year they are incurred, Beth will also be able to expense the $25,000 incurred for wages and materials

This provision is being phased in over five years and has different rules whether you’re incorporated or unincorporated.

Anyone who shares their ride for a fee – get your GST/HST account

Effective July 1, 2017 the government now applies HST/GST charges to ride sharing services. This means customers will start to see an HST or GST charge on services like UBER and Lyft receipts, just like you would on a regular taxi ride. If your side- or fulltime hustle is being a driver for a ride sharing company, make sure you register for a GST/HST account with the CRA, right away.

 

We want business owners to get every tax credit and deduction they’re entitled to. Come and talk to a Small Business Tax Pro today. Visit our Small Business page for more information.