Canada Revenue Agency (CRA) has been busy making several taxation changes that directly affects many corporate small business operations. For the past year, CRA has brought about significant changes on;
- How corporate small businesses are taxed
- How income can be distributed within a corporation.
Here are a few of the changes taking effect;
Billed-basis accounting for professionals
As of March 21, 2017 a business with a professional designation are no longer allowed to use billed-basis accounting. Basically, any Work in Progress (WIP) will need to be included as inventory (known as value inventory) at year-end at Fair Market Value (FMV). Basically, a professional business will no longer be allowed to recognize the amounts as income only when the work is billed or billable. Professional designations include accountant, dentist, lawyer, medical doctor, veterinarian, or chiropractor. There will be phase in provisions to facilitate the change.
As of January 1, 2018 the federal government has dropped the corporate small business rate from 10.5 percent to 10 percent, by increasing the Small Business deduction to 17.5 percent of its net income. Effective January 1, 2019 the government has implemented a further drop from 10 percent to 9 percent. This means the federal income tax rate, with the effective changes for the next 2 years, is the actual amount of taxes paid by a corporate small business.
Capital Cost for Goodwill and other intangibles
Capital property that is recognized as eligible goodwill or other intangibles is now under the same umbrella as the capital cost allowance system. This change took effect January 1, 2017 and is essentially to treat assets more consistently when comparing with tangible capital property. The primary businesses this change will affect are any that buy or sell goodwill or other intangibles such as farm quotas in agriculture.
Electronic T4 Slips Distribution
In 2017 Canada Revenue Agency (CRA) made the announcement that employers are allowed to distribute T4s electronically to active employees. An employer does not even need to obtain advance consent from their employees. If requested, a paper copy will need to be provided. Employees will need to be working currently for this to take effect. Any inactive employees such as those on maternity leave or seasonal workers will need to receive a hard copy via regular mail.
Banka & Company, CPA works with several corporate small businesses in a number of industries. If you have questions or are looking for a Chartered Professional Accountant to take care of your corporate small business tax return, contact us today to schedule an appointment.