The Department of Finance has released some updates to the proposed tax changes of Private Companies
The Department of Finance (“The Department”) has released some updates to the proposed tax changes of private companies. At this point none of these proposals have been finalized but we wanted to keep you informed as new information comes out. Reviewing the details, it appears the Department has scaled back on their original proposals.
The following updates have been announced:
- The Small Business Deduction rate will move from 10.5% to 9% over a two year period. The Small Business Deduction rate applies to any taxable income less than $500,000. This is a new addition to their original legislative proposals from July 18, 2017.
- The proposal to limit the ability to split the capital gains exemptions amongst family members has been removed. Although the proposal is not entirely clear, the current interpretation suggests the ability to split the capital gains exemption using a trust is still a viable option.
- An income splitting reasonability test will still be put into place. However, they are still developing the criteria of what “reasonable” means. Therefore, we may want to increase the income of non-participating shareholders to use up the lower tax brackets in 2017. We will be reviewing the tax situation of our clients to see if this is a good option for them in December and January as we start preparing the T5 dividend slips for their companies.
- The tax rules for the first $50,000 of passive income in a corporation are no longer changing in the new proposal. However, any passive income over $50,000 could be subject to a 73% tax rate.Passive income is any income earned from investments not from operations of a business.
- The passive income rules will only be applied on a go-forward basis; therefore, any investments currently held in a corporation and any future income from those investments will not be subject to the 73% tax rate.
KPMG has a team of tax specialists who have outlined the updates in further details. Please see the articles below if you wish to read more in-depth information on the subject.
“Private Companies – Passive Income Relief Announced”
“Small Business Tax Rate Drops to 9% by 2019”
“Proposed Anti-Surplus Stripping Rules Dropped”
Not everything has been finalized therefore this is our current interpretation of the proposals. As further updates and information are released, we will be sure to inform you of any significant changes that may affect you.
Please do not hesitate to contact us with any questions regarding the updates to the proposed taxation changes.