Cartoon businessman running away from tax collector

Ontario’s new Conservative government will not parallel the federal government’s proposed changes to the taxation of small businesses that limit access to the small business deduction (SBD) rate, the government announced in its fall fiscal update released Thursday.

Those changes affect Canadian small businesses and entrepreneurs that generate more than $50,000 in passive investment income in a year.

In the 2018 Ontario budget, the former Ontario Liberal government said it would align provincial tax legislation to harmonize with the federal Liberal government’s taxation of small business. The new Conservative government will not proceed with the changes.

“We are very pleased to see Premier [Doug] Ford take a stand on small business taxes on behalf of Ontario small business owners,” said Plamen Petkov, vice-president of the Canadian Federation of Independent Business, Ontario division in a news release. “It is critical that the province maintain every tool possible to ensure small business competitiveness, and that includes access to the small business tax rate.”

In its 2018 budget, the federal government outlined its new rules governing access to the SBD rate and passive investment income. When a private corporation earns more than $50,000 of passive investment income in a year, the amount of active business income that’s eligible for the SBD rate in the following year is ground down gradually. Access to the SBD rate is eliminated entirely at the $150,000 threshold of passive income and above.

The new federal rules kick in for the 2019 taxation year and will be based on passive investment income earned in 2018.