On October 16, 2017, Finance Minister, Bill Morneau, announced a cut to the small business corporate income tax rate as well as a few minor changes and tweaks to the tax proposals originally released in mid-July. While the announcement was short on specifics, it appears that the government is getting close to moving ahead with many of its originally proposed measures, even though, in our opinion, they continue to be fraught with issues, unnecessary complexities and ambiguities.

The new changes and measures announced include:

  • A reduction to the Federal small business corporate income tax rate from 10.5 per cent to 10 per cent effective January 1, 2018 and to 9 per cent effective January 1, 2019.
  • Expanding the circumstances where a dividend paid to family members will not be subject to the highest marginal tax rate for individuals.  Dividends will continue to be subject to the recipient's marginal tax rate to the extent that a family member can demonstrate that she or he has made a "meaningful contribution" to the business based any combination of the following four principles:
    • Labour contributions;
    • Capital or equity contributions to the business;
    • Taken on financial risks of the business, such as co-signing a loan or other debt; and/or
    • Past contributions in respect to previous labour, capital or risks.
  • Not moving forward with measures that limit access to the Lifetime Capital Gains Exemption.

In addition, the government has committed to reviewing the measures previously proposed in an effort to reduce the compliance burden associated with measuring the contribution of family members in a business, better targeting and mitigating the unintended consequences of the proposed rules, and addressing double taxation concerns raised during the consultation period.

The government will release revised draft legislation later this fall with the intent that the proposed changes be effective January 1, 2018.

We will keep you updated on any further details that may be forthcoming.

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This article was prepared by Crowe Soberman's  Tax Group:

Aaron Schechter, CPA, CA, TEP
Adam Scherer, BA, CPA, CA
Alexandra (Ali) Spinner, BA, MMPA, CPA, CA, TEP
Karen Slezak, BBA, CPA, CA, CFP, TEP
Karyn Lipman, BComm, CPA, CA
Silvia Jacinto, BComm, MTax

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.