Back Ground
On July 18, 2017, the federal Finance Minister issued a consultation paper, draft legislation and explanatory notes on proposed changes to the taxation of private corporations and their shareholders. Presumably, the proposals are meant to further the government's initiatives to tax the rich, provide tax fairness to all taxpayers and assist the middle class. The proposals in my view do not achieve these objectives, the proposals can apply to almost every private corporation and their shareholders and could most adversely affect the middle class. Some of the proposals are not set to take effect until 2018, and some proposals will take effect retroactively on July 18, 2017, if they are enacted. The government has asked the public for feedback up until October 2, 2017, which does not leave a lot of time to respond to the government.
If you are a business owner what can you do?
If you or your family members own a private corporation I would highly recommend that you contact your tax advisor as soon as possible and well before the end of the calendar year 2017 to see if there are planning opportunities available that you can take advantage of before the end of the year and assess the impact that the changes will have on a go-forward basis.
Please contact us if you would like to discuss these matters, an initial consultation is always free, and we would be pleased to assist you with this process.
Proposed Changes
The proposed changes are highly complicated. We have therefore not explained the proposed changes in great detail but have highlighted some of the main issues in very general terms. The proposals are aimed at four specific issues:
- Income Splitting
- Taxation of Investment Income
- Limiting the Life Time Capital Gains Exemption and
- Corporate Surplus Stripping.
Income Splitting
In general income splitting is achieved when an individual in a higher income tax bracket reduces their income by having other individual(s) (usually family member(s)) in a lower income tax bracket, pay tax on a portion of the income. The result is that the overall income tax paid is reduced.