Canada to Cut Tax Rate for Small Firms -- Update

By Paul Vieira Features Dow Jones Newswires

In an effort to quell an uproar among Canadian entrepreneurs over tax policy, Canada's Liberal government on Monday offered small firms a cut to their corporate rate and a pledge that new measures would only target the wealthy.

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Canadian Prime Minister Justin Trudeau unveiled the tax break and policy promise at a family-owned Italian restaurant north of Toronto, marking a rare retreat in Canadian politics on the sensitive issue of tax policy.

Mr. Trudeau said the government would cut the corporate tax rate paid by small firms, from the current 10.5% to 9% as of Jan. 1, 2019. That tax rate applies on the first 500,000 Canadian dollars (US$401,050) of business income.

Accompanied by Finance Minister Bill Morneau, Mr. Trudeau also on Monday released the first change to tax proposals, unveiled last summer and meant to target nearly two million small to midsize firms and the self-employed. On Monday, they said prior proposals to crack down on the distribution of dividends to family members would be applied more narrowly.

The announcements came after small-business owners, such as restaurant operators, have joined forces with doctors and farmers to express their anger the proposals on taxes that they argued would hurt middle-income earners.

The backlash has weighed on the Trudeau government's public support. The main criticism of the original proposals -- deemed the most significant tax changes affecting small business in more than four decades -- was that they cast too wide a net, and threatened to hurt the very people Mr. Trudeau has promised to help.

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Mr. Trudeau said the government would roll out the rest of the revisions to those proposals this week to ensure middle-income, small-firm owners won't be adversely affected by changes to tax policy.

His government came to power in 2015 on an overarching promise to boost the fortunes of middle-income earners, through tax breaks, while vowing the country's wealthiest would be required to pay more.

Already, his government has cut rates for the middle class and raised them on the wealthiest Canadians. Mr. Trudeau said that has helped Canada have the fastest-growing economy among the Group of Seven countries over the past year.

With the latest measures, he said he wanted to continue to help the middle class.

"It's not the people that are the problem. It's the system," Mr. Trudeau said, at an event in the restaurant's banquet hall, with its owners standing behind the prime minister. "The system we have right now is unfair, and it encourages the wealthy to pay less tax and requires middle-class Canadians to pay more. That's wrong and we are going to change that."

Shachi Kurl, head of the Angus Reid Institute, a public-opinion organization, said the criticism over tax policy has stuck to Trudeau's Liberal government unlike any other controversial issue in its nearly two years in power. Even Canadians unaffected have been angered by it, she said.

Final language on the proposal wasn't immediately available. When originally unveiled in July, government officials said the crackdown would raise an additional C$250 million a year in annual tax revenue.

Initial reaction from business groups appeared positive. The Canadian Advanced Technology Alliance said it was "pleased with the government's responsiveness," although it wanted to wait until all the revised tax-policy proposals are rolled out.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

October 16, 2017 15:19 ET (19:19 GMT)