Budget 2018 – Tax changes

  • March 12, 2018

The CBA is pleased that the government has responded to some of the concerns raised by the Association and its members about changes made last summer to small business taxation in its 2018 budget.

The federal budget tabled on Feb. 27 announced new rules for the tax treatment of passive income of Canadian Controlled Private Corporations (see page 74). In short, these new rules are considerably simpler than changes proposed last July and may mitigate some of the negative impact on savings for small businesses.  

The first change proposes to "claw back" access to the small business deduction for CCPCs that have more than $50,000 of annual passive income. The small business deduction limit will be reduced by $5 for every dollar of passive investment income in excess of the $50,000 threshold. Once passive investment income reaches $150,000, the CCPC will be subject to the general corporate tax rate. For this purpose, investment income will be more narrowly defined, excluding for example certain capital gains.

The second change will require a CCPC to pay slightly higher-taxed "ineligible" dividends to its shareholders when seeking to obtain a refund of "refundable tax" paid on its investment income. The impact of these proposals on many CCPCs, while not negligible, should be relatively modest.