Proposed Changes to Corporate Tax Planning and Tax Reduction Strategies

By Bilal Kathrada


Today in Ottawa, the Minister of Finance, Bill Morneau, held a press conference discussing the Liberal government’s proposed plan to implement changes to the taxation of private corporations and the impact to business owners. The Department of Finance has released a consultation paper that details the proposed changes.

This report stems from the government’s concerns over three tax planning and tax reduction strategies used by private companies and their owners:

1)    Income sprinkling using private corporations – paying amounts (dividends or capital gains) to family members who are subject to lower personal tax rates.

2)    Deferring personal tax by retaining income within a corporation which is generally subject to lower tax rates and building up a passive investment portfolio with the company.

3)    Converting a private corporation’s regular income into capital gains which can result in significantly lower tax rates than earning income personally.

The government has also commented that it is concerned about the multiplication of the lifetime capital gains exemption (exemption of $835,716 in 2017) which can be multiplied and used by more than one individual (i.e. several members of the business principal’s family). This can allow large gains from the sale of small business shares to be exempt from tax.


What does this mean for you?

At this point, there are no legislative changes so there will be no immediate change. However, the government has given until October 2, 2017 for submissions on their proposals. We will monitor the proposals and keep you aware of changes as more information is released.


If you have any questions about how this impacts you or your business, please call us at 604.639.0909.