Jeff Popiel introduced our Speaker of the day, Kim Moody FCA, TEP.
- Kim Moody presented a very serious topic, Taxation. More seriously, how new legislation will impact Canadian private corporations. Many of us Rotarians who own private companies are affected by this new incoming changes of laws.
- See the Department of Finance website posting of July 18, 2017: Minister Morneau Announces Next Steps in Improving Fairness in the Tax System by Closing Loopholes and Addressing Tax Planning Strategies.
- The release is a 63 page “Consultant Document”, 27 pages of draft legislation, 47 pages of explanatory notes, 20 page Powerpoint “Technical Briefing”
- The draft legislation comes with an application date of January 1, 2018 and applies retroactively to July 17, 2017 if passed (And since they have majority it will be passed)
- The Essence:
- “Government is taking steps to …close loopholes ….to the very wealthy …”
- “Currently there are signs that our system isn’t working … specifically when it comes to private corporations”
- Massive tax increases for families, and cause significant problems for transfers of family businesses.
- This is a Massive tax policy change, since Carter Commission, dated back 1972.
- This new legislation aims to expanding “Tax On Split Income”, made effective Jan 1, 2000.
- New amendments target spouses and adult children., which now includes “reasonableness” tests
- What is split income:
Current Legislation | Proposed Legislation |
Private corps dividends and shareholder benefits | Private corps dividends and shareholder benefits |
Partnership income | Partnership income |
Trust income | Trust income |
Indebtedness income | |
Income or gains from dispositions of property | |
Secondary income |
- What is “reasonableness” tests assess?
- Labor Test, Capital test, Risk, Amounts paid
- Amendment on existing Capital Gain Deduction via Lifetime Capital Gains Exemption (“LCGE”). Current amount is $835,716 for Qualified Small Business Corporation and 1 million for farming and fishing property. The amendments are:
- No LCGE under 17.
- No LCGE for disposition of property included in spilt incomes
- New tax amendment will make it no sense to sell to family member, since selling to arm length has much lower tax.
Kim’s commentary:
- Proposed legislation compare entrepreneurs to employees when analyzing asset accumulation in a private corporation
- Significant negative impact on Canadian economy
- What can we do as Rotarians?
- The proposals are foundational policy changes
- Deadline for comments – Oct2, 2017
- Contact your MP
- Advocate for another Carter Commission
- Carefully review how you may be affected, seek tax expertise
- Look for ways to crystallize capital gains deduction for shares of private corporation held by trusts/minors.
- If private corps has to dividend sprinkle, consider unwinding structures.
Larry Shelley thanked for the outstanding speech by Kim.