Proposed Measures to Address Tax Planning Strategies of Private Corporations

by in Canadian Government News and Updates
Proposed Measures to Address Tax Planning Strategies of Private Corporations
In light of last month’s announcement regarding proposed tax measures to address the tax planning strategies used by private corporations by the Department of Finance, we are focusing most of our blogs on this matter. 

When this announcement came out, we knew that the proposed changes will affect many business owners.  Many of the small business owners will most likely pay higher taxes in the years to come if these proposed measures to address the 3 common and for now, legal tax strategies are implemented.  If you are one of these business owners who will be affected, please do read on and check our blogs regularly to learn more about these proposed tax measures.

To start, let’s look at what the Department of Finance presents as basis for their need for action on these tax planning strategies.

Basically, the Department of Finance says that they are losing a significant amount of revenue to these tax planning strategies and that these strategies enable some owners of private corporations to gain unfair tax advantages. 

Over the past years, we have seen a significant increase in the use of private corporations. 

-      The number of Canadian-controlled private corporations (CCPCs) has increased substantially from 1.2 million in 2001 to 1.8 million in 2014. 

-      It is also important to note that there have been an increasing number of self-employed individuals who are choosing to incorporate. 

-      Right now, CCPCs account for more than twice the share of taxable active business income than they did in the early 2000s.

-      The amount of taxable passive investment income earned by private corporations also increased from $8.6 billion in 2002 to $26.8 billion in 2015.

The proposed measures to address income sprinkling will eventually result in additional income for the government to the tune of $250 million per year once fully implemented.  The resulting additional revenue from the proposed measures to address the other 2 strategies (holding a passive investment portfolio inside a private corporation and converting a private corporation’s regular income into capital gains) has yet to be provided.  The Department of Finance says that this information will be determined once a decision has been made on the final design of the new tax rules.

More one this topic in our future blogs! And as we’ve mentioned in previous blogs, we encourage all those who will be affected by these changes to let your MP know what you think. It is important to let the Government know what these changes will do to our businesses.

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