(Bloomberg) -- Prime Minister Justin Trudeau’s government will announce a planned cut to the small-business tax rate Monday, two officials familiar with plans say.
The rate will be lowered to 9 percent from the current 10.5 percent over the next two years, said the officials, speaking on condition of anonymity ahead of a formal announcement.
Morneau caused an outcry in July when he proposed tax changes that targeted high-earners for incorporating and using that rate to lower tax obligations, two officials familiar with plans say. Trudeau campaigned on reducing the rate to 9 percent, from 11 percent, in the 2015 election, but "deferred" the cut in his 2016 budget and froze it at 10.5.
The small business rate applies to income up to C$500,000 ($400,000). Canada’s federal net corporate tax rate is 15 percent.
Trudeau’s Liberal government is holding a caucus meeting Monday in Ottawa before a planned announcement later the same day with the prime minister and his finance chief, Bill Morneau. Spokespeople for Morneau and Trudeau didn’t immediately respond to requests for comment Monday.
Income Sprinkling
Specifically, the Liberals earlier proposed changes targeted income sprinkling, for cases where income is paid to relatives who are not actually working for a company to lower a tax bill; passive income, or investments made within privately held corporations that gave the owner a better tax rate than if they’d withdrawn the investment money as income first; and capital gains changes.
The proposals triggered a reaction from a wide range of business groups, many of whom sought to cast the measures as an attack on small business. Managing the uproar has been a key part of Morneau’s fall agenda.
Morneau has said they will amend the changes, for instance, to protect inter-generational transfers of family farms, which observers said would have been upended by the proposals.
A watchdog report has previously found that Trudeau’s initial decision not to reduce the rate would add C$2.2 billion to government revenue over five years, suggesting Monday’s decision to cut the rate would cut government revenue by a similar amount.
Trudeau, speaking Monday in Ottawa as he met with his caucus of government lawmakers, said they have received “great feedback” on the tax proposals. “We have a big week of rollouts, we are looking forward to it.”