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Proposed Tax Changes

On July 18, 2017, the federal government introduced proposals including draft legislation to amend the Income Tax Act, which, if passed, will have a significant impact on the taxation (and thus the viability) of Canadian controlled private corporations (CCPC), particularly those which operate small businesses.

The proposed amendments include increasing capital gains taxes on the deemed disposition of the shares an individual holds on death of a CCPC, including post mortem tax planning. The taxation rate is proposed to be greater for shares of a CCPC that an individual holds on death, than the taxation rate for shares that an individual holds in a publicly traded corporation. This may also affect trusts which hold shares of a CCPC and the beneficiaries of such trusts. It constitutes a fundamental change to the taxation of private corporations and their shareholders.

It would appear that the proposals are intended to discourage individuals from holding investments in privately held corporations and to encourage them to hold such investments outright. It would also limit income splitting and access to the capital gains exemption.   These proposed amendments have generated much discussion and anxiety for those in the estate and trusts field, accountants, lawyers and those who own and operate small businesses. The deadline for the public to make submissions with respect to the proposed amendments is October 2, 2017.


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