RE: Zero Tax on Small Businesses to Boost the Economy - A Crazy Idea?
It is on all "Active" income. However it is a one time use tax credit. Once it has been used up IE: your corporation has earned more than $500,000 in net income in one of its fascial years, you no longer have access to it.
In my opinion if the Canada Revenue Agency really wants to help the medium sized corporations in Canada, they have to amend what is considered passive income. For the last 10 years I have operated a number of self storage businesses in Canada. I had 7 employees and two locations. However considering that CRA saw storage as a passive income, I was always forced to pay 50% tax. This seemed highly unfair because the income was not passive. There was much more effort involved in collecting rents and keeping my facilities in tip top shape than there was in collecting a interest payment
That sounds pretty ridiculous! One would think it obvious that storage facilities need constant work and maintenance.
There is more to the CRA's methodology of what is considered passive. You need at least 8 employees for it to be considered an active business. None of those 8 employees can be family members. This was really hard because most of the people who worked at the business were family members. I guess in essence the CRA just makes it really hard on family businesses for some reason
Perhaps they are worried about people abusing the system and so their remedy has ended up being overly harsh. It is not uncommon for that to happen when it comes to rules and regulations.
Pretty much, leave it up to a few bad apple to ruin in for the rest of us. I guess phantom employees in family businesses and corporations in general are a real problem in Canada, so I guess this is a great way to weed them out.