Newsletter

Fall 2017

Also available as a PDF

Congratulations to Brittany and David Gray on the birth of their son, Levi.

Proposed legislation changes that will affect tax planning strategies used by private corporations

On July 18, 2017, the government released a proposal to policy changes relating to tax planning strategies being used by private corporations. The consultation paper is open to a 75-day public consultation period, ending October 2nd, 2017. If you would like to weigh in on these proposed changes, please contact your local MP or respond to the consultation request email at fin.consultation.fin@canada.ca. We encourage you to get involved.

Income Sprinkling Restrictions

The proposed system will restrict the ability to pay dividends to adult shareholders (age 18 and older) effective in 2018. It plans to extend the "kiddie tax" (high rate tax) on split income earned by adult family members using a new "reasonableness" test that considers the degree to which a family member contributed labour or capital to the corporation.

Taxation of Corporate Reinvestment

The government perceives that the build-up of a passive investment portfolio through the deferral of tax available within a corporation to be unfair when compared to individuals that cannot defer the personal tax on their income. The proposed system would remove the refundable component of tax on investment income (i.e., the dividend refund) and result in a double-tax on distributed earnings. The government’s suggested approach would also eliminate the inclusion of the non-taxable portion of capital gains in the capital dividend account (CDA) for those gains related to an investment acquired using income taxed at corporate tax rates. This will reduce future tax-free distributions to shareholders through the CDA rules.

Lifetime Capital Gains Exemption (LCGE) Restrictions

Under the current tax system all individuals are entitled to a capital gains exemption of up to $835,715 on certain small business shares, as well as qualified farm and fishing properties (on which the limit can go up to $1,000,000). There are also no restrictions on the ability to claim the LCGE for minor children or spouses and they do not need to own the shares directly in the corporation that is being sold. Lastly, an indirect ownership and allocation of a taxable capital gain from a family trust is currently eligible for the LCGE. The proposed system will include the following changes to restrict access to the LCGE:

  • The LCGE will not be available on gains accruing in years that an individual was under 18.
  • Limits will be imposed on the ability of spouses or other family members to claim the LCGE where they are not active shareholders or they did not contribute a large amount of capital to the business.
  • The LCGE will no longer be available on capital gains incurred by a family trust and allocated to beneficiaries.

Please click here for a more detailed analysis on these proposals.

2017 Federal and Ontario Combined Corporate Income Tax Rates

Canadian Controlled Private Corporations

Other Corporations

Small Business Income

(up to $500,000)

Investment Income **

General Manufacturing and Processing

General Active Business Income

15.00%

50.17% *

25.00%

26.50%

*30.667% of investment income is eligible for refund at a rate of $1 for every $2.61 of dividends paid. **
Canadian taxable dividend income (not from a connected corporation) is taxed federally only under Part IV at a rate of 38.33%. This tax is eligible for refund at a rate of $1 for every $2.61 of dividends paid. **
** See proposed changes above.

Changes to the Ontario Employment Standards Act

The following summarizes a few of the proposed amendments to the Employment Standards Act that will be of interest. Bill 148 indicates that the changes listed below, if passed, would be effective January 2018:

  • Minimum Wage increases: $14 per hour on January 1, 2018 and $15 per hour on January 1, 2019. The current minimum wage for most employees is $11.40 per hour.
  • Public Holiday Pay: calculation changes for public holiday pay that refer to regular wages in the pay period before the holiday divided by the days worked (rather than a four-week period of regular wages divided by 20).
  • Paid vacation: three weeks of paid vacation after five years of service with the same employer. The current minimum standard is two weeks of paid vacation per year.
  • Casual, part-time, temporary and seasonal employees would be required to be paid equally to full-time employees when performing the same job for the same employer.
  • Personal Emergency Leaves (PEL): current PEL provisions would apply to all workplaces (not just those with 50 or more employees). Employees would be entitled to 10 PEL days per year, with two paid PEL days.
  • Physician notes for absences: Employers would be prohibited from requesting a sick note from an employee taking a Personal Emergency Leave day.
  • Independent contractors: Employers that misclassify their employees as independent contractors could be subject to penalties, including prosecution, public disclosure of a conviction and monetary penalties.

Ontario Employer Health Tax (EHT)

The 2017 Ontario Budget has announced changes to eliminate the EHT exemption for any employer that is a designated member of a partnership. The 2016 federal budget introduced new anti-avoidance measures to prevent multiplication of the Small Business Deduction through certain complex structures. As part of its commitment to enhance tax fairness, the government proposes to parallel one of these measures by eliminating the EHT exemption for any employer that is a designated member of a partnership. This change is effective January 1, 2018.

2017 Combined Federal and Ontario Tax Brackets for Individuals

Taxable Income

Regular Income

%

Ineligible (Private Corporation) Dividends %

Eligible Canadian Dividends %

Capital Gains %

$ 0 to $ 42,201

20.05

6.13

0.00

10.03

$ 42,201 to $ 45,916

24.15

10.93

0.00

12.08

$ 45,916 to $ 74,313

29.65

17.37

6.39

14.83

$ 74,313 to $ 84,404

31.48

19.51

8.92

15.74

$ 84,404 to $ 87,559

33.89

22.33

12.24

16.95

$ 87,559 to $ 91,831

37.91

27.03

17.79

18.95

$ 91,831 to $142,353

43.41

33.46

25.38

21.70

$142,353 to $150,000

46.41

36.97

29.52

23.20

$150,000 to $202,800

47.97

38.80

31.67

23.98

$202,800 to $220,000

51.97

43.48

37.19

25.98

$220,000 and up

53.53

45.30

39.34

26.76

(This table does not include the Ontario Health Premium.)

Canada caregiver credit

The three tax credits previously available to caregivers (i.e., infirm dependant credit, caregiver credit and family caregiver credit) have been combined and replaced with a new 15% non-refundable Canada caregiver credit for 2017 and subsequent years. This tax credit will provide relief to caregivers for dependants who have an infirmity and are therefore dependent on the caregiver for support. The tax credit will be reduced dollar-for-dollar by the amount of the dependant’s net income above $16,163 (in 2017). The dependant will not be required to live with the caregiver in order for the caregiver to claim the credit.

Public transit tax credit

Effective July 1, 2017, the public transit tax credit is eliminated. The public transit passes and electronic fare cards attributable to transit use after June 2017 will not be eligible for the credit.

Tuition, Education and Textbook credits

Beginning with 2017, the federal education and textbook credits are no longer available. A federal credit will still be available for tuition fees paid. Beginning September 2017, the Ontario tuition and education tax credits will be eliminated. Credits will be available for studies from January to September 4, 2017. Amounts carried forward from previous years will not be affected.

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