On February 27, 2018, the Minister of Finance, Bill Morneau, presented the 2018 federal budget. Below, you’ll find an overview of the tax initiatives proposed in the budget.
If you have any questions about how the proposed initiatives will affect you, please don’t hesitate to contact us at 604-534-7701 or firstname.lastname@example.org.
Previously Announced Measures
The budget confirms that the government will proceed with a number of previously announced measures, including:
- Lowering of the small business tax rate from 10.5% to 10% on January 1, 2018 and to 9% on January 1, 2019.
- Changes to income sprinkling as announced on December 13, 2017. The new rules are now in effect as of January 1, 2018. To summarize the changes, a tax on split income now applies to dividends paid to family members, except when they are:
- the business owner’s spouse, provided the owner meaningfully contributed to the business and is aged 65 or older;
- aged 18 or older and made regular, continuous and substantial labour contributions to the business during the last five years; or
- aged 25 or older and own at least 10% of a corporation that earns less than 90% of its income from services and isn’t a professional corporation.
Business Tax Measures
Holding Passive Investments Inside a Private Corporation
On July 18, 2017, and in subsequent announcements in October 2017, the government proposed changes to the taxation of passive investment income earned by private corporations.
In response to feedback that the proposals could be very burdensome for businesses, the budget now proposes the following amended measures:
1) Limiting Access to the Small Business Tax Rate
This measure is intended to limit the ability of businesses with significant investment income to benefit from the current small business deduction limit of $500,000. Under this proposal, if a corporation earns more than $50,000 of passive income in a year, the amount eligible for the small business deduction will be reduced by $5 for every $1 of investment income over $50,000 (eventually being reduced to zero at $150,000 of investment income). Capital gains realized from the sale of active investments will not be counted under the threshold.
2) Limiting Access to Refundable Tax
This measure is intended to limit the tax advantage that a Canadian-controlled private corporation (CCPC) can currently obtain by recovering refundable taxes on the payment of eligible dividends. The budget proposes that a CCPC will only be entitled to a refund of taxes paid on investment income by paying non-eligible dividends.
Other business tax changes proposed in the budget pertain to:
- At-Risk Rules for Tiered Partnerships
- Tax Support for Clean Energy
- Artificial Losses Using Equity-Based Financial Arrangements
- Stop-Loss Rule on Share Repurchase Transactions
- Health and Welfare Trusts
International Tax Measures
International tax changes proposed in the budget pertain to:
- Cross-Border Surplus Stripping using Partnerships and Trusts
- Foreign Affiliates
- Reassessment Period – Requirements for Information and Compliance Orders
- Reassessment Period – Non-Resident Non-Arm’s Length Persons
- Sharing Information for Criminal Matters
- International Tax Avoidance – Base Erosion and Profit Shifting (BEPS)
Personal Tax Measures
Personal tax changes proposed in the budget pertain to:
- Reporting Requirements for Trusts
- Mineral Exploration Tax Credit for Flow-Through Share Investors
- Canada Workers Benefit
- Medical Expense Tax Credit – Eligible Expenditures
- Registered Disability Savings Plan – Qualifying Plan Holders
- Child Benefits
- Charities – Miscellaneous Technical Issues
Sales and Excise Tax Measures
Sales and excise tax changes proposed in the budget pertain to:
- GST/HST and Investment Limited Partnerships
- Consultations on the GST/HST Holding Corporation Rules
- Tobacco Taxation
- Cannabis Taxation
If you’d like to meet with us to review the tax changes and determine what steps you can take to manage the taxes you pay, please give us a call at 604-534-7701 or email us at email@example.com.