2017 Optimizer News Flash

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Proposed Tax Legislation Update

The Department of Finance released a statement today with an update to the controversial July 18 tax proposals targeting income splitting, passive income earned through private corporations, and converting a private corporation’s regular income into capital gains. No changes were announced today regarding the proposals on earning passive income inside a private corporation or converting regular income into capital gains, but there was an unexpected decrease to the small business tax rate.

Further information will be announced later this week and in the weeks to come. The Optimizer will summarize any new information as it becomes available.

Decrease to Small Business Tax Rates

The first announcement is that the small business tax rate on the first $500,000 of active business income earned by a Canadian Controlled Private Corporation will be lowered from 10.5% to 9%. The rate will decrease gradually to 10% on January 1, 2018 and 9% on January 1, 2019. The government had originally scrapped these small business tax rate decreases through 2019 in the 2016 federal budget.

Historically, decreases to the small business rate have come with corresponding increases to non-eligible dividend tax rates in order to prevent a tax advantage of earning income through a corporation as opposed to personally. Increasing the non-eligible dividend tax rates would also increase the tax cost of earning passive income inside a private corporation.

A footnote in one of the documents released by Finance today states the taxation of non-eligible dividends will be increased to reflect the lower small business tax rate.

Update on Income Splitting

The July 18 proposals included complex changes to income splitting that punished family members who received income from a private corporation without making reasonable contributions to the business. The proposals are controversial since there is little to no clear guidance on what makes a “reasonable” contribution to the business which gives CRA broad authority to challenge any income allocated to family members.

The release today indicated that the Department of Finance will “simplify” the changes to income splitting. Revisions to these proposals will be released later this fall. It is still expected that any changes will come into effect in 2018.

Update on Changes to Capital Gains Exemption

The Government announced today that it will not be moving forward with proposed measures to limit access to the Lifetime Capital Gains Exemption.

About SF Partnership

SF Partnership, LLP is a full service, mid-market, public accounting firm providing a wide range of services to private and public entities, in a variety of industries. We work with our clients to improve profitability, minimize tax and address business management concerns. We are committed to our clients’ success. We are a proud member of BKR, a respected international association of member firms that allows us to serve our clients’ interests around the world in a timely and seamless manner. Our standards for client service and our approach to adding value, combined with the quality of our people are what differentiate our firm and make us a leader in the field of public accounting.

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Phone: 416-250-1212
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E-mail: info@sfgroup.ca


Brook Scarr, CPA, CA
Partner, Taxation

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