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21 07 2017

Tax Planning Using Private Corporations – New Federal Proposals

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Last week, Finance Minister Bill Morneau unveiled plans to tighten what the federal government calls “unfair” loopholes for private corporations that enable many wealthy Canadians, including professionals like some lawyers, to reduce the amount of tax they pay.

Will the new federal proposals have an impact on your situation? Here are the key tax changes resulting from the proposals issued by the Finance Minister regarding tax planning using private corporations:

1. Entrepreneurs can’t share income from their company with family. Dividends paid to family taxed at top tax rate after 2017 – few exceptions.

2. Starting in 2018, entrepreneurs can’t use trusts for income splitting and accessing capital gains deduction with family members.

3. Business owners must re-think their corporate structures and take action in 2018 to preserve capital gains deduction for adult family members.

4. Most tax benefits of family trusts will be gone after 2017.

5. Incorporated professionals are caught in Liberals’ shutdown of income splitting and family trusts using private corporations.

6. Building wealth using private holding corporations may be eliminated. CRA proposes to levy higher taxes on investment income.

For more details on the above measures, you can read the technical briefing issued by the Department of Finance Canada: http://www.fin.gc.ca/n17/data/tppc-pfsp-eng.pdf

Stakeholders, including the affected business communities, provincial and territorial governments, tax advisors, commentators and other Canadians concerned about the fairness of Canada’s income tax system, are encouraged to share their views and ideas about the proposals to address the tax planning strategies: http://www.fin.gc.ca/activty/consult/tppc-pfsp-eng.asp

The matters highlighted in this tax memo are presented in broad general terms and, of course, cannot be applied without consideration of all circumstances. The Firm will be pleased to discuss with recipients the possible effects of these matters in specific situations.

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