ARTICLE · 12 DECEMBER 2016

An Update To The Small Business Deduction Rules, And Some Much-Needed Flowcharts

Moodys Private Client Law LLP

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It has been more than half a year since the Department of Finance announced proposed amendments to the small business deduction (SBD) rules in section 125 of the Income Tax Act (Act) as part of the 2016 Federal Budget.

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It has been more than half a year since the Department of Finance announced proposed amendments to the small business deduction (SBD) rules in section 125 of the Income Tax Act (Act) as part of the 2016 Federal Budget. The Canadian tax community has just started to digest the complexity and reach of these amendments. The draft legislation has only passed First Reading in Parliament (as Bill C-29), but in all likelihood, it will eventually be enacted in its current form since Finance has already made a round of revisions to the draft legislation on October 21, 2016.

At a high level, the new section 125 will 'carve-out' three types of income of a Canadian-controlled private corporation (CCPC) from being eligible for the SBD:

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