On July 18, 2017, Finance Minister Bill Morneau released a
consultation paper and a draft legislative proposal to amend the
Income Tax Act (Canada). The proposed changes affect tax planning
arrangements in private corporations and specifically target
income-splitting, the multiplication of the lifetime capital gains
exemption, the conversion of income into capital gains and the
deferral of passive investment income earned through a private
corporation. The proposed amendments may be summarized as
follows:
Income Splitting
Currently, taxpayers earning active business income through
private corporations may split income by issuing shares to adult
family members who are taxed at a comparatively low rate on
dividends paid to them from the corporation. The proposed changes
limit the ability to split income to individuals who are actively
involved in the taxpayer's corporate business. A
"reasonableness" test has been proposed to determine the
permissible amounts of
