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Following the release of the highly-anticipated 2016 Federal Budget this past spring, the Department of Finance released draft legislation on July 29, 2016. The budget proposed significant changes surrounding corporate structures designed to increase or multiply access to the small business deduction (SBD) that many professional practices depend on. If you are a member of a partnership and you have implemented a structure using one or more corporations to access the SBD, you have been able to capitalize on significant benefits over the years. With the new budget however, strategies which may have driven growth in the past may no longer be effective. For instance, common business structures affected include intercompany rent, common shareholdings and partnerships. One positive piece of legislation which has gone untouched (thus far), is that professionals can continue to structure their finances to allow for income-splitting with family members, allowing for tax saving opportunities.
The draft legislation implements the following changes:
The 2016 budget cancels the business rate reductions for the years 2017-2019. As such, the small business rate will remain at 10.5% for taxation years after 2016. Dividend gross up and tax credit rates for non-eligible dividends have been set at 17%.
Each of the above measures will negatively impact professionals in Canada. MNP is committed to advocating for professionals in Canada. As such, we are in the process of preparing a written submission to the Department of Finance, addressing the impact these changes will have on professionals and their practices.
These new rules will come into effect for any fiscal year ends commencing after March 21, 2016. For this reason, a committee of our Tax and Professional Services teams within MNP is working diligently to identify those affected and work with professionals to create meaningful tax strategies and corporate structures that minimize exposure and continue to position professionals and their businesses for prosperity and success.
For more information, contact Mark Bernard at 1. 800.661.7778 or [email protected], or Calvin Carpenter, CPA, CA at 1.800.661.7778 or [email protected], or contact your local MNP advisor.
MNP’s Professional Services team will also send further communication once the legislation to implement these changes from the 2016 federal budget is finalized to help make everyone aware of the outcome and how they may be impacted.
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