Minden Gross partner: Canada’s 2018 Budget was a sigh of relief
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Minden Gross partner: Canada’s 2018 Budget was a sigh of relief 18 April 2018 Toronto Reporter: Jenna Lomax
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Canada’s 2018 budget brought a sigh of relief, according to Samantha Prasad, a tax partner with Toronto-based law firm, Minden Gross.
In a company newsletter, Prasad said the respite came after the anticipated changes of Canada’s tax rules “were not as onerous” as once thought.
Prasad continued: “The 2018 Federal Budget was highly anticipated, or perhaps, dreaded, in light of the flurry of announcements in 2017. Most of the drama surrounding the budget release centered on one item—the passive income rules for private corporations.”
The Department of Finance had warned that in relation to the passive income rules, the 2018 budget would contain legislation on how they would be applied.
Prasad commented that she was surprised at the corporate tax measures introduced this year.
These rules stated that “any past and current investments (and future income earned thereon) in a corporation as at the date the new rules are announced will be grandfathered, and so will not be subject to the new rules”.
In addition, the first CAD $50,000 of passive income will not be taxed at the top rates and the Department of Finance said they “will allow for contingency funds or reserves to allow for the purchase of equipment, business expansion or hiring and training of staff” and “incentives will be in place for venture capital and angel investors to allow them to continue to invest in Canadian innovation”.
Commenting on these rules, Prasad said: “Happily, the 2018 budget proposal substantially scaled back the previously announced measures, so much so that they seemed to be completely new rules.”
“Essentially, the budget proposed a clawback of the small business deduction instead of the application of the top tax rate.”
Prasad explained that the new rules will “work in tandem” with the taxable capital rules where the small business deduction is reduced and eventually eliminated for companies that have taxable capital between $10 million and $15 million.
She said: “For Canadian-controlled private corporations, the access to refundable dividend tax on hand on the payment of taxable dividends to its shareholders is a true cornerstone of tax integration for corporations and their shareholders.”
Although there were no new changes proposed to the corporate tax rates, the budget confirmed the previously announced reduction in the federal small business deduction—a reduction to 10 percent for 2018, and a further reduction to 9 percent for 2019.
The budget also introduced new ruling about personal tax measures, tax credits and deductions, personal tax measures, international tax measures and controlled foreign affiliate status.
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