Tax Planning Proposals - 1022 Words

On July 18, the Federal Government announced their intention to restrict certain tax planning strategies available to shareholders of private corporations that they felt unfairly benefit business owners over salary-earning Canadians. The consultation period during which stakeholders were allowed to provide comments on the proposals ended on October 2, 2017. Ottawa’s original proposals were met with widespread criticism from the business community. As a result, during Small Business Week, October 16 - 20, some revisions were announced. The below summarizes the original proposals as well as where we currently stand. Income Sprinkling Income sprinkling is a method utilized by some business owners to transfer income to a family member in a†¦show more content†¦Details on how they plan to enact this legislation are forthcoming. The effective date of this proposal will be January 1, 2018. Ottawa will not move forward with the measures aimed at restricting use of the Lifetime Capital Gains Exemption (LCGE) as their proposal would have unintended and severe consequences on intergenerational transfers of a business. Passive Investments within Private Corporations A business owner that is generating excess cash on top of what they require to survive can take advantage of a tax deferral that is not available to salaried employees. The excess income generated can be invested in passive investments within the corporation. Since the excess income has been taxed at a lower corporate rate, this leaves more funds available for investment which allows for a higher level of compounding as well. Salaried employees are not in a position to be able to defer tax on an unlimited amount of income. Even though the business owner will eventually have to pay themselves dividends, Ottawa feels this deferral advantage gives them an unfair advantage over salary-earning Canadians. Original Proposal Current rules allow additional capital that is not paid out to the owners or used in the business to be left and invested within the corporation. The July 18th proposal did not detail how OttawaShow MoreRelatedEstate Tax Planning Proposal744 Words   |  3 PagesEstate Tax Planning Current law for estate tax, gift tax, and generation skipping transfer tax is a 35% rate with an exclusion of $5.12 million. This is scheduled to change on January 1, 2013 to a 55% tax rate with an exclusion of $1 million. Due to the scheduled change, it would be advisable to be very aggressive in tax maximization before December 31, 2012. Pending congressional action, there is a proposal to for a 45% tax rate with an exclusion of $3.5 million for estate and generationRead MoreCorporate Tax Case Study990 Words   |  4 PagesThe Canadian private corporate tax rate is lower than the personal income tax rate.1,2 The intention for this lower tax rate is because the government recognizes the investment risks involved in operating a business.3 Also, lower tax rates incentivize business owners to reinvest in their own business which will promote a stronger economy.3 However, the issue with lower corporation tax rates is that high income individuals can use loopholes in the tax system and incorporate to pay significantly lowerRead MoreEssay On Small Business Tax1029 Words   |  5 PagesProposed Small Business Tax Changes and Revisions On July 18, the Federal Government announced their intention to restrict certain tax planning strategies available to shareholders of private corporations that they felt unfairly benefit business owners over salary-earning Canadians. 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