The rumour of a possible review of tax measures affecting private corporations had been circulating for several months. In his latest budget, federal Finance Minister Bill Morneau had indicated that he was ready to begin a consultation on this subject. And on July 18, he announced the official launch of this public consultation on tax measures affecting private companies, which will run until October 2, 2017.
Three main strategies will be examined:
Use of private corporations for income sprinkling
- This concerns professionals who may use their corporation to split their income with one or more family members. The government intends to limit access to this tax strategy.
- When one of the family members (adult children, spouse or other) does not contribute to the private corporation financially or by performing tasks for it, income splitting with the family member may no longer offer tax benefits.
Holding a passive portfolio in a private corporation
- This concerns the tax deferral that professionals can obtain by saving via their private corporation. The government wants to put an end to this benefit.
- The government is thus proposing to eliminate certain tax deferral mechanisms.
Conversion of a corporation’s regular income to capital gains
- This concerns corporate owners who withdraw income from their private corporation and convert it to less heavily taxed capital gains, instead of paying themselves a salary or dividends.
- The government is looking to eliminate use of such strategies.
Putting things in perspective
First, we want to remind you that the government is only at the consultation stage with respect to the amendments being considered. The expected draft legislation could therefore be modified according to the recommendations arising from these consultations. You must realize that as part of the process to amend the law on taxation of private corporations, the government plans to give each professional time as well as a transition period so that they can review their situation before the new measures officially come into force.
In light of these potential changes, we recommend that professionals not react too hastily to the federal government’s announcement.
- Professionals who are already incorporated should not rush into any changes and should keep their current corporate structure.
- For professionals who are considering incorporation, we strongly recommend that they wait until the new measures are implemented so that they can better assess the suitability of incorporating their practice.
Rest assured that Professionals’ Financial and its team of tax specialists are following this matter very closely. We will keep you regularly informed on the progress of the consultations and the actions to take and when to take them, if necessary.
If you have any questions, don’t hesitate to contact your Wealth Management Advisor, who will be pleased to speak with you, share information relevant to your situation, and help you make the best decisions to protect your wealth.
If you’re not yet a client of the Financial, take advantage of our expertise by contacting one of our advisors and discover how we can help you protect your wealth.
Benoit Chaurette, M. Fisc., F. Pl.
Tax Specialist and Financial Planner
The information contained herein has been obtained from sources deemed reliable, but we do not guarantee the accuracy of this information, and it may be incomplete. The opinions expressed are based upon our analysis and interpretation of this information and are not to be construed as a recommendation.
If you have any questions, please contact your Wealth Management Advisor, or your tax advisor, your legal advisor or your accountant.