Budget 2018: Business Income Tax Measures, Part 1

by in Canadian Government News and Updates
Budget 2018: Business Income Tax Measures, Part 1
On February 27, 2018, the Federal Government announced details of Budget 2018. Here are the Business Income Tax Measures proposed in this Budget, starting with the business limit reduction on passive investment income.

Small Business Deduction - Business Limit Reduction on Passive Investment Income: Canadian controlled private corporations or CCPCs can avail of the lower tax rate on the first $500,000 (which is the federal business limit) of active business income. When retained earnings taxed at the small business rate are used to invest passively rather than in the active business, significant tax deferral advantages can be realized.

Budget 2018 proposes to reduce the business limit for CCPCs and their associated corporations that have significant income from passive investments. Under this measure, the business limit will be reduced on a straight line basis for CCPCs having between $50,000 and $150,000 in investment income. The measure will affect CCPCs only to the extent that their business income exceeds the reduced business limit. Currently, the business limit is only reduced when the corporation’s taxable capital employed in Canada exceeds $10 million.

This measure will apply to tax years that begin after 2018. Please note that rules will apply to prevent transactions designed to avoid the measure such as the creation of a short taxation year in order to defer its application and the transfer of assets by a corporation to a related corporation that is not associated with it.

Are you going to be affected by this change? If yes, please contact us at KD soon to discuss what your options are.

On our next blog, we’ll look at another business income tax measure included in Budget 2018 – the Refundable Dividend Tax on Hand – so please check back soon!

Source: https://www.budget.gc.ca/2018/docs/tm-mf/tax-measures-mesures-fiscales-2018-en.pdf
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