The Canadian Federation of Independent Business (CFIB) has called on Canadian provinces to reject the federal government’s tax change on passive investment income, following the Ontario government’s example. 

The Ontario government has announced that it will reverse the previous provincial budget measure to begin taxing small firms at the large corporate level if they earn more than $50,000 in passive investments income each year. The previous Ontario government had adopted the new federal rules in its spring budget.

Rising federal tax burden

"We are very pleased to see Premier Ford and Finance Minister Fedeli stand up on behalf of small business owners," stated CFIB president Dan Kelly in a Nov. 15 announcement. "Given the rising federal tax burden on small firms with multi-year plans to raise CPP premiums and carbon taxes, it is critical that provinces ensure all small firms retain access to the small business tax rate."

The CFIB says that some small businesses which have passive investments will no longer benefit from the 9 per cent small business tax rate and have to pay 15 per cent in taxes due to the federal government’s new rules. The CFIB says small businesses risk losing lower provincial tax rates if provincial governments propose similar legislation. 

Giant hike in corporate tax bill

"Many small firms are facing a giant hike in their corporate tax bill as a result of their passive investments and Ontario's move is welcome news. CFIB will continue its efforts to get other provinces and all federal parties to commit to reversing this harmful measure in the months ahead," says Kelly.

The CFIB says passive investment income is often used by small business owners to stay in business and pay their staff during economic downturns, as well as for retirement savings.