Finance Minister Bill Morneau shakes hands with Prime Minister Justin Trudeau as he arrives in the House of Commons prior to tabling the federal budget in Ottawa on Tuesday, Feb.27, 2018. (Sean Kilpatrick/Canadian Press)
The highly anticipated release of the 2018 Federal Budget came out this week and we would like to highlight some of the items that were discussed and what business owners and individuals should expect to be changed going forward. As a quick synopsis of the release, any passive income held within a corporation that exceeds $50,000 per year beginning January 1, 2019, will have new negative tax implications. The key here is that we need to proactively plan to ensure any negative tax implications are mitigated. In addition, income splitting with family members who are not active in the business is moving forward. The one universally accepted exemption to the income splitting rules would be if the family member, over any 5 year period and/or is currently, actively involved in the business contributing greater than 20 hours per week to the business, is entitled to receive dividends if they are a shareholder and are outside of the new income splitting rules. On a positive note, the corporate tax rate for the small business deduction will be reduced from the current rate of 15% to 14.5% effective January 1, 2018 and will reduce again to 13.5% effective January 1, 2019.
Please note this is a very high level synopsis of the proposed changes. Supplementary information attached is also a summary of the changes to expect. Should you require more information or would like to schedule a meeting to discuss the implications of the changes or how to plan to mitigate any negative tax consequences related to the changes, please feel free to contact our office and we would be happy to assist.