There have been a lot of changes to the tax code in the last year. Trying to cherry-pick the most important changes was a challenge, but we’ve narrowed it down to the Top 5 as we see them. So, with a little less fanfare than David Letterman might offer, here are our Top 5 Tax Changes for Business Owners.
#5 – Specified Corporate Income from the March 2016 Federal Budget
This came into effect for any year-ends beginning after March 23, 2016. The real impact of this was felt as the 2017 fiscal year-ends wrapped up and corporations with income from a non-arm’s length party faced a tax rate of 27% (up from the Small Business rate of 12.5%). The assessment of non-arm’s length situations required additional tax planning and new Small Business Deduction allocations between the entities.
#4 – Reduction of the Federal Small Business tax rate
Effective January 1, 2018, the Federal Small Business tax rate will decrease from 10.5% to 10%. The combined rate for Alberta corporations will now be 12%. A further reduction to 9%, or 11% combined, is proposed for January 1, 2019.
#3 – Income sprinkling measures introduced on July 18, 2017
Effective January 1, 2018, individuals receiving dividends from a “related business” could be subject to the highest marginal tax rate on this income. Certain exclusions may apply to business owner’s family members to reduce the tax on split income (“TOSI”). Should they not qualify for the exclusion, reasonableness tests would be applied to determine the appropriate personal tax rate. The criteria for the exclusions and the reasonableness tests requires a detailed analysis for each individual situation. Click here for an example of the fun that awaits.
#2 – Passive income treatment to be announced in Federal Budget 2018
Changes are coming but the actual details for application will only be announced in the upcoming Federal Budget. Finance Canada did indicate that the existing tax treatment would continue to apply to an annual threshold up to $50,000 of passive income. They have also indicated that existing investments would be “protected” and that the new rules would apply on a go forward basis. However, they have not defined how or what would actually be protected.
#1 – We are on it!
We know these changes will have an impact to each of you in some capacity. VR will continue to monitor developments and consider options to maximize your tax planning.
Staying on top of taxation changes and knowing how to interpret them continues to be an important part of the Vertefeuille Rempel service promise. We are always on the lookout for these and other financial developments and keep our eyes peeled to make sure we can leverage whatever tools are available to give our clients the best service and advice possible.