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Prime Minister Justin Trudeau addresses participants in a roundtable discussion with civil society leaders in Mexico City, Mexico on Oct. 12, 2017.

CARLOS JASSO/REUTERS

Prime Minister Justin Trudeau is set to announce revised plans to tax small businesses, including guarantees that low- and middle-income Canadians will be protected from new measures that raise taxes on personal investments made through private corporations, federal officials said.

In addition, Mr. Trudeau will announce changes to the government's plans to ensure that small-business owners – especially farmers – will not face a greater tax bill when they transfer their companies to family members, the sources said.

The government is expected to announce plans to reduce the small business tax rate to nine percent. The Liberals promised during the 2015 election campaign to lower the rate from 11 per cent to nine, but have so far only reduced the rate to 10.5 per cent.

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The Liberal government has faced strong opposition from small-business owners to the changes that were first presented in July, in addition to vocal criticism inside the governing party's caucus.

Read also: Lessons from the Liberals' tax mess

How the Liberals want to change the tax code – and why

Senior federal officials said the final measures will be introduced in the fall fiscal update in the coming weeks. However, Mr. Trudeau will try to make it clear during an announcement in Stouffville, Ont., on Monday that the government will address the major concerns expressed by Canadians during recent consultations on the proposals.

Federal officials, who spoke on condition of anonymity ahead of the official announcement, said Mr. Trudeau will promise that the measures will only target high-income Canadians.

On the issue of taxing "passive" income in small businesses, in particular, the government will make sure that it only hits taxpayers that have set aside particularly large amounts of private investments in their corporations, the sources said. One of the government's key objectives, the sources said, will be to shield female business owners who put aside income for their maternity leaves.

"There will be a mechanism that will protect people who want to set a certain amount of money aside up to a specific level," said a senior federal official who refused to provide precise numbers ahead of the announcement.

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Mr. Trudeau will be accompanied by Finance Minister Bill Morneau and Small Business Minister Bardish Chagger as he lays out the revised plan to tax incorporated small businesses. The announcement will be made at a restaurant in Stouffville, Ont., at 11:30 a.m. on Monday, after a special closed-door briefing for Liberal MPs at 8 a.m. in Ottawa.

Mr. Morneau will be expected to continue consultations on the government's plans before a final announcement in the fall fiscal update, the sources said.

Unveiled in July, the three-point plan would restrict the use of "income sprinkling" to family members who do not work or invest in the business as a way of paying less tax. It would also restrict the conversion of dividend income into capital gains and, in the proposal that stoked the most controversy, limit the use of incorporated small businesses as vehicles for making passive investments.

Mr. Morneau has said the passive-investment changes would likely affect only a small percentage of the 1.8 million incorporated small businesses known as Canadian-controlled private corporations. Still, that proposal has attracted the fury of business owners across Canada and prompted strong attacks by the Conservative Party of Canada in the House.

Earlier this month, Mr. Morneau said his revised proposals would protect the interests of farmers, fishermen and female entrepreneurs.

"We want to make sure that small businesses can continue to invest in their business and their communities and that the measures actually encourage that," he said.

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Mr. Morneau has described the changes as necessary to correct a growing and unintended aspect of the tax system, which fails to encourage small-business owners to reinvest their corporate savings back into their companies.

"We're actually giving people incentive to sit the dead money on their balance sheet and invest it in something else," he said last month. "We've created a big, gaping hole for tax planning and at the same time a decreased likelihood that people are going to invest in their business. That's what we're getting at here."

The minister estimated that hundreds of billions of dollars currently sits in small-business corporations, with up to $30-billion added each year.

Facing a steady stream of attacks, the Liberals have taken a hit in public support in recent weeks.

The latest numbers from a Nanos Research tracking poll indicate that the Liberal Party has lost five points over the past four weeks, down to 36.9-per-cent support. The Conservative Party has gained two points, up to 32-per-cent support. The NDP has remained relatively stable at 15.4 per cent.

The poll of 1,000 respondents was based on a four-week rolling average that ended on Oct. 6. It is considered accurate within 3.1 percentage points, 19 times out of 20.

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