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Earlier this year, Federal Finance Minister Bill Morneau proposed changes to tax reduction strategies employed by private Canadian corporations. Three areas of tax planning were highlighted:
The Department of Finance received more than 21,000 submissions protesting the proposed changes during the consultation period ended on October 2, 2017.
As part of a week-long series of announcements regarding small business taxation, on Thursday, October 19, 2017, Finance Minister Bill Morneau announced that the Government would not be moving forward with measures limiting access to the Lifetime Capital Gains Exemption or measures relating to the conversion of income into capital gains. The consultation period had revealed a number of unintended consequences of the proposed measures, such as in respect of taxation upon death and intergenerational transfers of businesses.
On October 17, 2017, Minister Morneau had outlined the Government’s intention to proceed with tax measures related to income earned on passive investments held by a private corporation. The proposed measures include the grandfathering of all past investments and the income earned from those investments (i.e. such investments will be protected from the new policy); however, with respect to new investments, there will be a $50,000 threshold on passive income in a year. This is considered equivalent to $1 million in savings, based on a nominal 5 per cent rate of return.
The federal government had previously announced on October 16, 2017, that it will reduce the small business tax from 10.5 percent to 10 percent, effective January 1, 2018 and to 9 percent, effective January 1, 2019. The small business rate applies to the first $500,000 of active business income. The government will be taking steps to ensure the Canadian-controlled private corporation (CCPC) status is not used to reduce personal income tax obligations for high-income earners rather than supporting small businesses.
Read MNP’s analysis of the first proposed tax changes
For more information contact your
MNP Business Advisor.
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