Optimizer

2017 Optimizer News Flash

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Surplus Stripping Proposal News Flash


The Department of Finance announced that it will not move forward with measures relating to the conversion of income into capital gains. Information specifically identifying which measures was not provided.

The government previously stated it was targeting situations where amounts are being extracted from a private corporation at lower capital gains tax rates as opposed to dividend rates. These proposals were controversial due to their broad application which created concerns regarding:

• the ability of a private corporation to flow through to shareholders the non-taxable portion of capital gains in the form of capital dividends;

• double-tax for individuals who own private corporation shares at the time of death; and

• double-tax on transfers of a family business to the next generation.

Until actual changes to the July 18, 2017 draft legislation are released, it remains unclear how the measures and changes to the measures will be implemented. Finance also announced earlier this week:


• The small business tax rate will decrease from 10.5% to 9% by 2019 with an offsetting increase in the tax rates on dividends paid to owners of Canadian controlled private corporations.

• Proposals limiting access to the capital gains exemption will not be implemented. Further detail was not provided as to which specific proposals they are not moving forward with.

• Implementation will proceed for previously announced proposals targeting income splitting which are intended to punish family members who receive income from a private corporation without making reasonable contributions to the business. Revisions to simplify these measures are to be announced later this fall.

• Measures taxing passive income earned in a private corporation on a punitive basis will be introduced in the 2018 federal budget. Passive income in excess of a threshold of $50,000 per year will be subject to additional tax at an unspecified rate. While stating these measures will only apply on a go-forward basis, no guidance was provided regarding what this means and no indication whether income earned on previously accumulated corporate earnings will be grandfathered.

Further details on the earlier announcements are available in our October 16 Optimizer News Flash: Private Corporation Update and October 18 Optimizer News Flash: Passive Income Update and can be found 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
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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