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Too small to be a small business? How passive income rules could impact you.

If you run a campground or a self-storage facility, you might know this tax headache very well: auditors from the Canada Revenue Agency (CRA) telling you that your business doesn’t qualify for the small business tax rate because it’s considered “passive income.”

Due to outdated rules, if your self-storage or campground business has fewer than five full-time employees, you are not eligible to receive the lower tax rate. As a result, many business owners have had their tax bills been re-assessed by CRA and have been told they owe tens, or even hundreds of thousands of dollars — leading some to shut down their businesses. This unfair and arbitrary rule punishes businesses for being too small and needs to be changed.

How we’re fighting for you

These so-called “passive” income rules are being misapplied to these industries. If you run a campground or self-storage facility, you know that the amount of work involved is anything but passive.

We are fighting to have these rules updated to remove the requirement of having five full-time employees to access the small business rate. In 2015, the previous government launched a consultation and review of these rules; however, the current government ended the review and decided not to make any changes in the 2016 budget. We are encouraging the government to re-open these consultations in to amend these rules to better reflect the realities of running a business.

Since then, we’ve written several letters and have met with the Minister of National Revenue, urging her to change these rules. Over the past three years, we have also made recommendations in our pre-budget submissions to the Minister of Finance. As a business owner, you are part of the day-to-day operations of your business and you should not be punished for being too small!

Clarifications for campgrounds

While CRA has not changed its rules on this matter, it has provided some clarity for campgrounds. If you run a campground with fewer than five full-time employees, but provide services over and above just renting the land, you have a better chance of qualifying for the lower rate.

Some examples of services are: laundry, swimming pool/lifeguard, playground, food and supplies retailing, etc. The more services your business provides, the more likely it is that you’ll be able to qualify for the rate. For more information on how to qualify, you can visit CRA’s website or our site.

What you can do

If you’re concerned about how these rules could impact your campground or self-storage business, call your MP and share your story with your CFIB Counsellor. Your stories will help us get the message out to government that these rules hurt real small businesses!

March 23, 2016

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Topics in this Article: Taxes

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