Published | Category : Income tax - businesses

Adjustment to the Refocusing of the Small Business Deduction – Replacement of the Hours Worked Criterion

To make it easier for corporations to determine whether they qualify for the small business deduction (SBD), the qualification criterion concerning the minimum number of hours worked is being replaced by a qualification criterion concerning the minimum number of hours paid.

The special rules applicable to the qualification criterion based on hours worked are being adapted to take into account the fact that the qualification criterion will now be based on hours paid for a corporation's employees.

More specifically, the following rules will apply:

  • A maximum of 40 hours per week per employee will be considered.
  • The expenditure relating to hours paid for an employee will have to be incurred for the taxation year covered by the application for the SBD.
  • The threshold of 5,500 hours applying to the current year will be based on a full taxation year, and the threshold will be reduced proportionally in the case of a short fiscal period. The proportional reduction will not be applied for the previous year consolidated basis test.
  • With respect to the previous year consolidated basis test, the corporation will have to consider the taxation years ended during the calendar year preceding the year during which the corporation's taxation year ends.
  • Each corporation in a group of associated corporations will have to count its employees' hours paid. The hours paid for a subcontractor that is acting on behalf of a corporation will not be counted by the corporation, but may be counted by the subcontractor.

Furthermore, a person who holds, directly or indirectly, most of the shares with full voting rights of the capital stock of a corporation will be deemed to have received, from the corporation for a taxation year of the corporation, subject to the above conditions, remuneration corresponding to a conversion factor of 1.1 for each hour the person worked as an active participant in the corporation's activities for the year.

The corporation will have to document the hours worked by a person in these circumstances.

The qualification criterion is replaced as of the coming into effect of the refocusing of the SBD, for taxation years beginning after December 31, 2016.

For more information, see pages A.25 to A.27 of the document entitled Additional Information 2017-2018 (PDF – 2.71 MB), published by the Ministère des Finances.

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