On July 18, 207 the Department of Finance released a discussion paper on proposed changes to the Income Tax Act that may have a significant impact on your taxes in 2018. These proposals address what the Government perceives as "loopholes" in the Canadian tax system.
Click to view the disucussion paper.
It is important to note that this is a discussion paper on the changes that they want to make. For the most part, these changes would be effective for 2018 and future tax years.
The discussion paper focuses on the following three items:
1) The proposals would limit "income sprinkling" to family members to a "reasonable" amount based on contributions to the business and would add a more detailed requirement for family members 18-24 years of age. The proposals also limit the multiplication of the lifetime capital gains exemption;
2)The Department of Finance is seeking to introduce rules to eliminate the financial advantage of investing passively through a privately held company by introducingan alternative approach to taxation; and
3)Further, the Department of Finance is proposing to introduce rules to prevent a private corporation's surplus income from being converted into a capital gain.
The most immediate and significant impact to your situation could be that dividends paid to shareholders who are not active in the business would attract personal income tax at the highest possible tax rate to them.
The consultation period ends on October 2, 2017 at which time there may be changes made to the proposed new rules.
We would like to thank Conrad Yen CPA, CA of STRATEGEX
for contributing this article. These proposed changes may generate numerous questions. We invite you to contact Conrad directly with your concerns and to discuss how this could impact your personal situation.
CONRAD YEN CPA, CAPARTNER T: 604-688-2355E: firstname.lastname@example.org
Tax law is subject to continual change, at times on a retroactive basis. Should the facts be incorrect or incomplete or should the law change, our advice may not be appropriate. We are not responsible for updating our advice based on changes in the law after the date of this blog.