Private Corporation Tax Proposals: "Striking A Balance" Or Introducing Greater Complexity?

Background

On July 18, 2017, the Department of Finance ("Finance") introduced a number of proposed technical amendments to the Income Tax Act (Canada) (the "Tax Act") specifically targeting:

1. Arrangements used to "sprinkle" income earned by private corporations among shareholders;
2. Structures employed to maximize the utilization of the lifetime capital gains exemption (the "capital gains exemption") within a family unit; and
3. Tax planning strategies that have the effect of converting regular or dividend income into capital gains.

The proposed technical amendments include (i) an extension of the "tax on split income" to capture "unreasonable" amounts paid to Canadian resident individuals, regardless of their age, (ii) measures aimed at severely curtailing access to the capital gains exemption, and (iii) revisions to the "surplus stripping" rules in the Tax Act (the "July Proposals").