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What's changed, what's the same and what's to come with the Liberal small business tax proposals

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Taking a page out of its 2015 playbook when the government raised taxes on the wealthiest one per cent so that it could, in its words, “introduce a middle class tax cut for nearly nine million Canadians,” Finance Minister Bill Morneau on Monday linked a cut in the small business tax rate to a planned rethink, rework and partial abandonment of the recently-announced small business tax proposals.

On Monday, the government announced that the small business rate will drop to 10 per cent on Jan. 1, 2018 and to 9 per cent on Jan. 1, 2019. The rate, which is currently at 10.5 per cent, applies to the first $500,000 of active business income. The current rate came into effect on Jan. 1, 2016, shortly after the government came to office. The rate was frozen as the government “paused on further reductions in order to better understand the use of the small business tax deduction and the potential to be used as a tax planning tool for the wealthiest of Canadians."

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Five common options for financing your small business

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For most small businesses, financing can be a challenge. Whether you need bridge capital to keep the business running in tough times, or structured debt for long-term growth, it pays to have a strategy for seeking out those elusive financing dollars. Statistics Canada found that just over half (51.3 per cent) of businesses requested external financing in 2014.

Equity-based financing options like venture capital often make the headlines, but less than one per cent of small businesses requested this in 2014. Debt-based financing is far more common, as is trade credit from suppliers.

Here are five financing options to turn to, depending on the type of small business you run, and its situation.
BOOTSTRAPPING
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Five tools for forecasting your small business's cash flow

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 As a small business owner, there may be nothing more important to To get a handle on your company’s future cash at hand, several tools are available to help you analyze projected income and expenses. They range from rudimentary spreadsheets to slick visualization apps. Here are five tools that can help you forecast your figures.

Templates
For some, there’s nothing like rolling up their sleeves and getting their hands dirty with an Excel spreadsheet. If this is you, here are some templates you can use to get you started. Futurpreneur Canada provides a cash flow template that will cover everything from outlining startup costs through to projecting cash flow month by month for two years.
SCORE, a network of business mentors created by the U.S. Small Business Administration (SBA), has its own cash flow and financial projection templatesto help project cash flow over a 12- month or three-year period.
Each of these sites offers its own handy guide to get you started with your cash flow forecast template, so that even business owners without ninja accounting skills can get a handle on things. The best part? It’s all free.

QuickBooks cash flow projector

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How Trudeau’s plan to target corporate passive investment got it so wrong

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 Both Prime Minister Justin Trudeau and Finance Minister Bill Morneau have stated that the government’s private-corporation tax proposals will not affect businesses earning less than $150,000 a year. But one of the coalitions opposing the changes says that two-thirds of Canadian small businesses earn less than $73,000 a year, and that the proposals will hurt the majority of these middle-class business owners. How to make sense of these different analyses?

The government’s package has three parts, one of which — and the most contentious — involves passive investments, such as mutual funds, held by Canadian-controlled private corporations (CCPCs). At present, a CCPC pays immediate tax of 50 per cent on its investment income. Under “tax integration,” a large portion of this tax is refunded when the CCPC pays dividends to its owner. As a result, there is generally no further net personal-corporate tax when dividends are paid

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Morneau's tax changes are so complex and unfair, they'll turn accountants bald—and rich

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 The philosophy behind the proposals is to “level the playing field” and the example given in the summary overview is an individual living in Ontario and earning a salary of $220,000 versus his neighbour who earns the same amount through a private corporation and is able to reduce taxes through income sprinkling.

What is omitted is the couple, each spouse earning $110,000, which pays less in tax than their neighbours where one spouse earns $220,000 and the other spouse has no income. The issue is, of course, progressive tax rates which mean that the more you earn, the higher the rate of tax paid, not just the amount paid. In the U.S., couples file joint returns so there is no need for income splitting, unlike Canada.

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