Tax proposal summary: what's in, what's out

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.

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	Unknown; draft legislation 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

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