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2017 Optimizer News Flash

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Passive Income Legislation Update


The Department of Finance released new information today on the proposed changes aimed at penalizing companies earning investment income as follows:

• Passive income earned in a private corporation exceeding $50,000 per year (equivalent to a 5% return on a $1,000,000 portfolio) will be subject to an additional punitive tax. The tax rate and effective date is not specified. Under the previous proposals, the tax rate could be as high as 73%.

• The government states that the measures will only apply on a go-forward basis and that investments already made by private corporations’ owners, including the future income earned from such investments, will be protected. At this point there is no specific information and it is unclear how this will be implemented. There is no mention in this regard for investments of previously accumulated corporate earnings.

• Tax rates on dividends (other than eligible dividend) will increase. This will increase the personal taxes payable on dividends paid out of investment income earned by private companies. As currently announced, this increase will apply regardless of whether the company’s source of funds is from previously generated business income or not.

• Unspecified incentives will be put in place to protect venture capital and angel investors.

• Consideration will be given as to the appropriate scope of the new tax regime with respect to capital gains, including whether in certain circumstances the new rules should exclude capital gains realized on the sale of shares of a corporation engaged in an active business.

• Draft legislation is to be released in the 2018 federal budget, including a technical description of how the passive investment income threshold will be applied. Specific details remain unknown until then.


Finance also announced earlier this week:


• The small business tax rate will decrease from 10.5% to 9% by 2019.

• The July 18 proposals limiting access to the capital gains exemption will be abandoned.

• The July 18 proposals targeting income splitting will be “simplified” with revised legislation to be released before the end of the year.


Further details on the earlier announcements are available in our October 16 Optimizer Newsflash on our website: http://www.sfgroup.ca


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.

Contact Us

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Phone: 416-250-1212
Fax: 416-250-1225
E-mail: info@sfgroup.ca
http://www.sfgroup.ca

Editor:

Brook Scarr, CPA, CA
Partner, Taxation

All rights reserved. Permission to reproduce or copy in any form or means is prohibited without the express written consent of SF Partnership, LLP. All information contained in this publication is general in nature, and should not be construed as professional advice. Readers are urged to consult their professional advisors before taking any action based on this publication. ©SF Partnership, LLP 2017