The Canadian Cattlemen’s Association (CCA) commends the Government of Canada for revisiting the changes outlined in the Tax Planning Using Private Corporations proposal.
This week, revisions to the original July 18 proposal were announced that aim to address the significant concerns raised by the CCA on behalf of the farm families that run Canada’s 60,000 beef operations. Amendments will be made to the three identified areas of concern to farm families: income sprinkling, passive investment inside private corporations and converting income into capital gains. A reduction in the small business tax rate was also announced.
Specific amendments include:
1. Income sprinkling: The government is planning to move ahead with measures to restrict income sprinkling but amendments will be made to “simplify” the revised proposal. The stated intention is to provide more certainty that family members who meaningfully contribute to the business will not be affected by the changes.
2. Passive investments inside private corporations: The government is planning to move forward on changes that restrict the tax deferral opportunities related to passive investments, but will provide business owners some flexibility for savings purposes (ex: business downturn, expansion, retirement or parental leave). Specifically, the government will allow up to $50,000 in passive income in a year before higher tax rates are imposed to provide flexibility for business owners who choose to hold savings in their corporation for sound business reasons. According to Finance Canada, this is equivalent to $1 million in savings, based on a nominal 5-per-cent rate of return – an amount that is exceeded by only about 3 per cent of corporations.
3. Converting income into capital gains: The government announced it will not be moving forward with either measures relating to the conversion of income into capital gains, or measures to restrict access to Lifetime Capital Gains Exemptions.
Lower taxes: The government announced a Small Business Tax rate reduction of 10.5% to 10% starting January 2018, and 10% to 9.5 % starting January 2019. Note this will apply on income up to $500,000.
The amendments to the proposed tax plan are a step in right direction. We thank the government for recognizing the need to rescind their planned capital gains changes, as work undertaken by the CCA and other agriculture groups shows moving forward as intended would have significant unintended consequences in terms of increased cost, from tax perspective, to transfer farm in family compared to third party.
Given that the changes made in the revised proposal remain complex, the CCA will be reviewing the final package in its entirety with tax professionals to fully assess the impact on our industry.
The CCA is eager to work with government further on tax policy on this and other areas of importance to beef producers.
Source: CCA