After a whirlwind summer of wildfires (literally) and the federal government’s introduction of proposed tax changes, the short 75-day consultation period has ended and here is a summary of results:
Corporate Tax Rates for Small Businesses
The federal tax rate for small business will be decreased to 10% starting January 1, 2018 and down further to 9% starting January 1, 2019. For British Columbians, with the provincial NDP government announcing that provincial corporate tax rates decreasing down to 2% starting April 1, 2017, that means the combined (federal and provincial) corporate tax rate will be 12% starting January 1, 2018 and 11% starting January 1, 2019.
The income sprinkling proposals will proceed, however with revisions to the proposed legislation. These revisions will focus on simplifying the rules and reducing the compliance burden. There is still a lot of controversy around this topic given that “reasonableness” plays a significant part in the rules, which is open to interpretation.
The proposed rules around passive income, also known as investment income, earned by a corporation will be updated to include a “small business” threshold. The government has determined that no new rules will be implemented for passive income earned up to $50,000.
Lifetime Capital Gains Exemption
The government has eliminated the proposals to restrict access to the Lifetime Capital Gains Exemption, which would have affected the sale of small business corporation shares, farming businesses, and fishing businesses.