Budget 2018: Tempered Private Company Passive Investment Income Changes Unveiled

In July 2017, the Department of Finance tabled proposals to significantly amend the rules respecting the taxation of passive income earned by private corporations to address what it perceived to be an inappropriate deferral advantage enjoyed by the shareholders of such corporations.  During the public consultation period that followed the release of the proposals, the Government received stakeholder feedback that was almost universally negative, with criticisms that highlighted the far-reaching impact of the proposed measures, their damaging effect on Canada's global tax competitiveness, and their administrative complexity.

While Budget 2018 introduced measures to limit the tax deferral advantages perceived to be afforded to private company investment income, they are simpler and narrower in scope than those originally envisioned and, thus, are (at least to some extent) responsive to the extensive public feedback provided over the course of last summer.