The Federal Budget, released on March 22, 2017, stated that the federal government would be reviewing tax planning using private corporations, with particular emphasis on sprinkling income, holding passive investments inside a private corporation and the conversion of dividends to capital gains. The Budget promised that over the coming months it would issue a report outlining concerns and policy responses.
On July 18, 2017, the Department of Finance (Finance) released 26 pages of draft legislation, 44 pages of explanatory notes, a detailed consultation paper and a PowerPoint slide deck, all focused on tax planning involving private corporations. Topics addressed in the materials included income sprinkling, the removal of retained earnings on a tax-effective basis, the lifetime capital gains exemption and the accumulation of corporate profits for passive investments. Finance provided a 75-day consultation period, with a deadline of October 2, 2017 for taxpayers' submissions.
What came as a particular surprise to many is the draft legislation included in this material. The March 22 Budget had promised policy responses that would address areas of concern. The release of draft legislation covering all but one of the topics addressed implies that the consultation period is over already. Moreover, most of the short consultation period occurred over the summer months when many stakeholders were on vacation.
This article provides a brief overview of the existing legislation and a summary of the proposed changes and their impact on taxpayers, followed by some suggested planning ideas. Of course, the proposed amendments are not yet law, and may be withdrawn or amended. However, assuming the amendments as proposed currently become law, the following planning consideration may be relevant to you. These planning considerations are of a general nature only and are not intended to be legal advice provided to any person. We urge you to consult with a Dentons tax advisor before implementing any changes.
For more information, visit our Canadian Tax Litigation blog at www.canadiantaxlitigation.com
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