UPDATE

Tax Planning Using Private Corporations

Starting on October 16, 2017 the Minister of Finance has issued daily updates on the provisions discussed below.

On July 18, 2017 the Minister of Finance issued a discussion paper and proposed changes in respect to Tax Planning Using Private Corporations. The comment period on these proposals ended on October 2, 2017. The Department of Finance received more than 21,000 submissions. Nonetheless it only took them two weeks until the Minister of Finance was able to start announcing changes. Our summary of the original proposals is available here. The following is a summary of the status of the issues reviewed in our summary:

Income Sprinkling - The Government intends to proceed with this change in 2018 and they will work on changes to make them less complex, better targeted and to avoid double taxation. No details were provided. This was updated on October 16, 2017.

Income Sprinkling – Multiplication of the Capital Gains Exemption – the Government does not intend to proceed with these proposals. This was announced on October 16, 2017.

Holding Passive Investments Inside a Private Corporation - The Government intends to introduce legislation in respect to this proposal in the 2018 Federal budget, effective on that date. They reiterated that the changes will not impact current investments and have also said the changes will not impact the first $50,000 of investment income – we expect extremely complex legislation. This was updated on October 18, 2017.

Converting Regular Income to Capital Gains – The Government said that they would not be proceeding with these proposals. However, they did indicate that they would be consulting with farms, fishers, and other business owners in respect to intergenerational transfers. This was updated on October 19, 2017.

In addition, notwithstanding that a low small business tax rate is what caused the problems they are trying to address, they announced a reduction in the small business tax rate by 0.5% on January 1, 2018, and by an additional 1% on January 1, 2019. This was announced on October 16, 2017.

Resources

Other References

  • Submission by CPA Canada, including high level discussion.
  • The Department of finance paper is available here. At the time of writing it was also on the Department of Finance home page.
  • Most of the major accounting and tax law firms have papers on their website in respect to these proposals.
  • Moodys Gartner Tax Law LLP has written some excellent papers and blog entries on this topic.
  • Yale & Partners LLP, CPA's has posted an excellent letter they sent to the Minister of Finance on theses issues on their website.
  • Karen Stillwell at Connors Stilwell wrote an excellent post on what questions a real consultation should include.
  • Tim Cestnick has written some nice very readable columns on this subject (requires Globe And Mail Subscription). His October 19th article talks about why the changes are not enough.

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