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2017 Small Business Corporate Income Tax Changes

December 13, 2017 - Income Sprinkling Draft Legislation

The government has released draft legislation which will enact changes to the Tax on Split Income (TOSI) rules, also known as the "kiddie tax" rules. The legislation expands the "income sprinkling" situations in which income is considered "split income" and is taxed at the highest personal income tax rate. This is no longer just a "kiddie" tax. The legislative changes are to be in effect for the 2018 taxation year. See:

December 13, 2017 News Release

Canada Revenue Agency guidance on the proposed measures

Amendments to the Income Tax Act and Regulations and Explanatory Notes

Tax Tip: If you think you are affected by these tax changes, seek professional tax advice!

October 24, 2017 Fall Economic Statement - changes re non-eligible dividend gross-up, and tax credit, increased small business deduction.

October 20, 2017 news release including Venture Capital and Angel Investment

October 18, 2017 news release re Passive Investment Income:

- All past investments of a Canadian-controlled Private Corporation (CCPC) and the income earned from those investments will be protected.

- A $50,000 threshold on passive income in a year will be available to provide more flexibility for business owners to hold savings for multiple purposes, including savings that can later be used for personal benefits such as sick-leave, maternity or parental leave, or retirement.

October 16, 2017 news release re Small Business Tax Rate, Income Sprinkling:

- The Department of Finance announced that the small business tax rate would be reduced to 10% effective January 1, 2018 , and to 9% effective January 1, 2019. The news release backgrounder indicated that the dividend tax credit rate for non-eligible dividends would be adjusted to reflect the reduced corporate tax rate, but did not indicate what the rate would be.

- The government will simplify the proposal to limit the ability of owners of private corporations to lower their personal income taxes by sprinkling their income to family members who do not contribute to the business. The vast majority of private corporations will not be impacted by the proposed income sprinkling measures. Corporations with family members who meaningfully contribute to the business will not be impacted by the proposed measures on income sprinkling.

- The government will not be moving forward with proposed measures to limit access to the Lifetime Capital Gains Exemption.

- Later this fall the Government will release revised draft legislative proposals outlining the proposed changes, which will be effective for the 2018 and subsequent taxation years.

October 3, 2017 news release after the close of consultations: Next Steps in the Government's Plan for Tax Fairness and a Strong Middle Class.

July 18, 2017 Proposed Tax Changes for Private Corporations

The Department of Finance published draft legislation and explanatory notes on July 18, 2017. The purpose of the proposed legislation relates is to address tax planning strategies utilized by private corporations. This includes:

- income/dividend sprinkling,

- passive investment income, and

- converting income into capital gains.

See the following Department of Finance information:

- Technical briefing: Tax Planning Using Private Corporations

- News item: Next steps in improving fairness in the tax system by closing loopholes and addressing tax planning strategies

- Invitation for Comments - Submit your comments no later than October 2, 2017.

Other Resources:

The Video Tax News team has produced an October 2017 video, which sheds more light on the proposed changes. This should be viewed by every small business owner, whether the business is a corporation or a partnership.

CRA: Tax on Split Income - Excluded Shares

Moodys™: A critical review of recent CRA views on TOSI and how to use them to your advantage (Jan 31, 2019)

Is a 93% Tax Rate Fair to Canadian Small Business Owners? - from Minden Gross LLP

Revised: December 09, 2023