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Canadian Tax FAQs – Proposed Canadian Tax Changes



What are the proposed tax changes to private corporations that the Canadian government made in July 2017 and what do these changes mean for my company?

On July 18, 2017, the Canadian government proposed tax changes in an effort to remove tax advantages that small business owners have and address aggressive tax planning strategies involving the use of private corporations. These proposed changes are open for discussion until October 2, 2017, before being formally submitted for legislation.

Discussion:

These proposed changes have three main areas of focus. In this series, we will discuss each of these areas and their impact to your private corporation.

  1. Sprinkling income using private corporations: Restrictions on income splitting to family members through dividends and capital gains by introducing reasonability tests on dividends and providing restrictions on the eligibility of the Lifetime Capital Exemption on capital gains.
  2. Passive investment portfolios held inside a private corporation: Neutralizing financial advantages of investments held within a private corporation by increasing taxes on passive investment income.
  3. Converting private corporation’s regular income into capital gains: Preventing private corporations from converting surplus income to a lower-taxed capital gain and stripping it from the corporation.

Please read the next three FAQ publications for a discussion on the above proposed tax changes and their impact on your company.

Recommendation

If you would like to discuss these proposed tax changes and how they will impact your company, please contact us. We disagree with removing these tax advantages small business owners have as compensation for the risk of owing and financing a business.

Grant has been in the CA business since 1988, starting his own practice in 1994. His tax expertise encompasses tax planning, international tax issues, and Scientific Research and Development tax credits. He is a graduate of the CICA In-Depth Tax Course and in 2012, Grant received the CA Community Service Award and the Scout Leader Medal.

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