Canada's Small-Business Tax Plan Up in the Air: Where do we stand today?

The 2017 federal budget identified tax planning areas the government feels some owners of private corporations have received unfair tax advantages.

Back on July 18, 2017, the Minister of Finance, Bill Morneau, announced the release of a consultation paper and draft legislation to address the following issues:

  • Income splitting
  • Multiplication of the capital gains exemption
  • Holding passive investment portfolios inside private corporations
  • Converting a private corporation’s regular income into capital gains

The government released this paper seeking input from the general public by October 2, 2017. Basically, 11 weeks to analyze complex matters that could affect the backbone of our country!

Many professional groups, such as STEP, CALU, CPA, and Law Society, to name a few, provided the government with compelling and opposing feedback.

Since then, the government has extended consultations and Morneau has announced follow-up measures to the taxation of private corporations.

Simplify the rules pertaining to the July 18 proposal involving income sprinkling.

The government advises that corporations with family members who meaningfully contribute to the business will not be impacted by the proposed income sprinkling measures. In addition, the government will not move forward with the proposed measure to limit access to the Lifetime Capital Gains Exemption.

Allow a $50,000 threshold on passive investment income per year.

The government advises that this measure will allow business owners more flexibility to build a cushion of savings for business purposes - for example, to deal with a possible downturn, finance a future expansion, or personal circumstances such as parental leave, sick days, or retirement.

Not moving forward with measures relating to the conversion of income into capital gains.

The government heard the concerns that the original measures could result in several unintended consequences, including taxation upon death and potential challenges with intergenerational transfers of business. In the coming year, the government will continue its outreach to business owners and others - including farmers and fishers - to develop proposals to better accommodate these businesses.

The final legislation proposals are still in discussion but Scrivens will communicate this information when it becomes available. In the interim, we understand many businesses and their professionals engaged in planning are sitting idle until this legislation is confirmed.

While we wait, contact us to review your business to have you best prepared for final legislation.

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