ARTICLE · 24 JULY 2017

Sweeping Proposed Tax Changes To Private Corporations

Torkin Manes LLP

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On July 18, 2017, the Department of Finance released legislative proposals ("Proposals") and a consultation paper dealing with tax planning using private corporations.

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On July 18, 2017, the Department of Finance released legislative proposals ("Proposals") and a consultation paper dealing with tax planning using private corporations. The 2017 Federal Budget alluded to certain changes to tax planning for private corporations, but the impact of the Proposals is far-reaching. In fact, these Proposals affect many of our owner-manager clients.

Income Splitting

Very generally, the Proposals will eliminate most common income splitting strategies used by small businesses. Under the current rules, adults (spouse and children over the age of 18) may be shareholders of a private corporation and receive dividends from the corporation. Such dividends are then taxed in the hands of the shareholder at his or her personal graduated income tax rates.

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