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Federal Corporate Tax Announcements

October 17, 2017

This week the Liberal government has been announcing tweaks to their July 18 tax proposals. We are encouraged with some of the changes to the proposals.  However the rules are still without all the background details. Once we have all these details, we will provide a more thorough analysis of the rules. 

However here is a brief summary of what has been announced so far this week:

  • The small business tax rate will drop over the next two years to 9% federally. So the combined rate in Alberta will move to 11% for income under $500,000.
  • The intention of the government is to proceed with the rules on split income. The intention of the government is to simplify the rules around the contribution to the business and provide clarity for small business owners. We will wait for the details to see how this will be accomplished. This will be effective January 1, 2018.
  • The government has backed off on changing any rules related to the capital gains deduction. The split income rules according to the government will not apply on capital gains deductions.
  • The passive investment rules were tweaked to provide some ability for small businesses to carry investments. Historical investments and their earnings will not be impacted by the new rules which is good for existing passive investments.
  • The new passive investment rules will exempt the first $50,000 of passive investment earnings (interest, dividends) received in the company from the new rules.  Essentially the government is going to let you carry roughly $1,000,000 of passive investments before the new rules kick in.  Anything over $50,000 will be subject to tax corporate tax of 50.67%. This result seems quite harsh. There are no details provided with the announcement and it is anticipated that the new rules will be clarified with the budget in 2018. 

There will be other goodies announced during the week and we will update you with all the changes as they occur. We hope to see some details in the next couple weeks that we will analyze and provide you with some planning opportunities. 

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