Formally announced in February 2018, the new federal budget has numerous provisions that are going to have a variety of effects on residents and businesses in Canada. If you own a convenience store or a corner shop, here’s a look at how some of the specific proposals are likely to affect you.
No Caps on Credit Card Fees
Unfortunately, the 2018 budget makes no mention of capping credit card fees for merchants. This comes as a blow to the convenience store industry and many other retail groups who have been advocating for a cap. Currently, fees hover around 4%, and shockingly, that’s five times more than business owners pay in many other parts of the world. If you’re frustrated with high credit card processing fees, you may want to offer discounts to encourage cash payments. While your merchant agreement may ban you from charging extra to take cards, you are allowed to take the opposite approach and offer discounts for cash payments.
Benefits for Workers
Under another proposal in the new budget, the Working Income Tax Benefit may be replaced by the Canada Workers Benefit. Through this program, a worker earning $15,000 per year would get $500 more annually than they received through the WITB. If this proposal is adopted, it may not affect you directly, but it is likely to impact many of your employees. Essentially, thanks to this shift, your employees could end up with more money in their pockets, even without you raising their wages. Arguably, that could help to lower stress just a bit and potentially boost productivity among your team.
Changes to Passive Income Rules
If you’re like many business owners, you might take some of your profits and reinvest them into passive income channels such as real estate investments or stocks. That can be an extremely effective way for your convenience store to build up a rainy day fund, but the 2018 budget has some new rules around passive income. Basically, you’re allowed to have $50,000 in passive income, and that gets taxed at your usual rate. However, passive income over that rate reduces your small business deduction.
Here’s how it works. As of 2018, the first $500,000 your company earns is taxed at the small business rate. That’s 10% in 2018, and it goes down to 9% in 2019. Now, if you have too much passive income, that threshold goes down by $5 for every $1 in excess passive income.
To explain, imagine you have $80,000 in passive income. That’s $30,000 more than the $50,000 you’re allowed. When you multiply $30,000 by 5, the result is $150,000, and when you subtract that from your $500,000, your small business deduction becomes $350,000. At this point, you have to pay the corporate income tax rate on any earnings over that amount. Ultimately, when doing your tax planning, you need to decide if the passive income outweighs potentially having to lower your small business deduction.
Running a convenience store can be difficult. You stock a lot of different products, all of which have their own challenges. In many cases, you may need to maintain a 24-7 schedule, and like any business owner, you have to juggle everything, from finding quality help to staying on top of your accounting. Luckily, the new budget seeks to make a few of these challenges easier.