On February 27, 2018, the Honourable Bill Morneau, Minister of Finance, released the 2018 Federal Budget, “Equality + Growth: A Strong Middle Class“. The highly anticipated Budget forecasts a $19.4 billion deficit for fiscal 2017-18, an $18.1 billion deficit for 2018-19, and a $17.5 billion deficit for fiscal 2019-20.
As expected, there were changes to the taxation rules for private Canadian owned corporations that hold passive investments, which were originally announced in July 2017. The good news is that the new rules have been simplified and the additional tax resulting from these new rules is significantly less than what was contemplated in July 2017. In many cases, it will still make sense to use after-tax business profits that are not required for business use to invest in passive investment inside a corporation.
There were no changes to the personal or corporate income tax rates or any other significant changes to the income tax rules. There had been speculation that the government would revisit its proposed changes to converting income to capital gains, which was originally announced in July 2017 and then abandoned in the Fall. However, there was no mention of this in the Budget, and as a result, this type of planning is still available.
For information on some relevant topics of interest, please visit the following links:
- Passive Income
- Refundable Dividend Tax on Hand
- Reporting Requirements for Trusts
- Reassessment Periods
- Foreign Affiliates
Contact us today to discuss how you and your business may be affected by changes proposed in the 2018 Federal Budget.