young-woman-small-business-alternative-employment

If you’re unclear on changes to Finance’s tax proposals for business, that might be because the changes were announced at three different times this week, with full details yet to be fleshed out.

Read: Liberals to cut small business tax rate to 9% over 2 years

For example, the government says it will simplify the proposals for income sprinkling, referring to the reasonability test for family members’ contribution to the business.

That means only a small number of businesses that pay “obviously” unreasonable amounts to family members with no active contribution to the business will be targeted, says Dave Walsh, tax service line leader for BDO Canada.

For passive investments, clients should wait to act until draft legislation comes out with Budget 2018, suggests Ryan Ball, tax partner with EY Canada’s Private Client Services.

And, though proposals were dropped for surplus stripping, “that doesn’t mean other changes won’t be announced in the future,” says Ball, referring to those specific proposals.

Here’s a summary of the changes.

 

Target of proposed measures On or off the table Changes or next steps Effective date
Income sprinkling On
  • Simplification of proposals to come
  • Draft legislation will be released “this fall,” reveals the government’s  fall economic statement.
January 1, 2018
LCGE (lifetime capital gains exemption) Off
  • Details needed on how relief from proposals will aid transfer of family businesses to the next generation
N/A
Passive investments inside a corporation On
  • $50K of passive income investment annually won’t be subject to the proposed measures
  • Effective on a go-forward basis only, so past investments and the income earned are protected
  • Details needed on how the $50,000 is determined
  • Details to come, after further consultation, on maintaining incentives for venture capitalists and angel investors
Not known; draft legislation will be released with 2018 federal budget
Conversion of a corporation’s regular income to capital gains (surplus stripping) Off
  • Pipeline planning stands
  • As with withdrawal of LCGE tax proposals, more detail is needed about tax-efficient intergenerational business transfers
N/A

 

Read:

Tax proposals modified to allow $50K in passive income

Morneau to change surplus stripping proposals

Understanding the lifetime capital gains exemption

Also read:

How tax rules disadvantage family business succession

Finance tax proposals threaten family business planning

Problems with Finance’s passive investing proposals

How proposed tax changes target income sprinkling

Urgent: Talk to business clients ahead of income sprinkling measures

Originally published on Advisor.ca
Add a comment

Have your say on this topic! Comments are moderated and may be edited or removed by
site admin as per our Comment Policy. Thanks!