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The problem with Section 84.1, according to the Department of Finance is the wording as it describes a specific type of avoidance transaction.  Therefore, the section does not apply to transactions that avoid its specific terms.  In particular, the section can be avoided to enable an individual shareholder to obtain capital gains treatment rather than taxable dividend treatment with respect to taxable capital gains that are ineligible for the Lifetime Capital Gains Exemption.  With the case of intergenerational business transfers, the government did mention that they are reviewing the current income tax system that may have had adverse effects on genuine...
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For the past weeks, our blogs have been focused on the proposed changes that the Government announced to address tax planning strategies used by private corporations.  We’ve already reviewed the proposed changes to the first two strategies: income sprinkling and holding passive investments in the corporation.  This week, we’ll take a look at the proposed changes to address the third tax planning strategy – converting a private corporation’s regular income into capital gains. This strategy, according to the Department of Finance, can reduce income taxes by taking advantage of the lower tax rates on capital gains.  Generally, income is paid out...
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Last week, Finance Minister Bill Morneau announced its intention to address tax planning strategies involving the use of private corporations. The Finance Minister also encouraged stakeholders – including the affected business communities, provincial and territorial governments, tax advisors, and other Canadians concerned about the tax system – to participate in the ongoing consultations.  Let’s review what exactly the proposed changes are: 1.    Income Sprinkling:  This involves diverting income from a high-income individual to family members with lower personal tax rates. 2.    Passive Investment Income:  This involves retaining passive investments in a corporation since corporate income tax rates are much lower than...
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On our last blog, we discussed the current rates of the capital gains exemption.  This time we’ll focus on the definition of the qualified small business corporation shares and the qualified farm or fishing property. Qualified Small Business Corporation Shares:  The following conditions must be met for a share of a corporation to be considered a qualified business corporation share: 1.    At the time of sale, it was a share of the capital stock of a small business corporation, and it was owned by you, your spouse or common-law partner, or a partnership of which you were a member; 2.    Throughout...
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