On February 27, 2018, the Liberal federal government presented its annual budget.
There are minimal impactful changes for personal tax issues, however, please see attached budget highlights for additional information.
The small business community was most concerned about the very contentious changes to taxation of passive income and income sprinkling. The budget was less punitive on passive income but the government maintained their stance on taxing income paid to family members as dividends (income sprinkling).
- Small Business tax rate: lowering the small-business tax rate from 10.5% to 10%, effective January 1, 2018, and to 9% effective January 1, 2019. However, this will be accompanied by a corresponding increase in the non-eligible dividend tax rate.
- Passive Investment Income (effect on the Small Business Deduction limit): the small business deduction limit will be reduced by $5. Thus, the small business limit will be reduced gradually as the level of investment income increases above $50,000, and will be reduced to zero when a CCPC earns $150,000 of investment income.
- Income Sprinkling: The government will maintain its stance on dividends being paid to family members, who don’t make a meaningful contribution to the business. This income will be taxed at their top marginal tax rate in effect.
Speak with your advisor to see if any of these changes will affect you.