March 1, 2018

Dear Client:

Attached here is the budget commentary from CPA Canada for the Federal budget introduced on Tuesday, Feb. 27.

There were a few relatively minor tax changes in the budget which are outlined in the commentary. One item that should come as absolutely no surprise to anyone is that the Budget introduced a new tax on cannabis products.

What about those changes proposed in July, 2017 for private corporations? In very broad strokes there were 3 pillars that comprised the proposed changes:

1. Income sprinkling. This issue was dealt with by the Tax On Split Income rules that were introduced on December 13, 2017 and went into effect January 1st, 2018.

2. Reduction or elimination of tax on the disposition of shares in private corporations. The government abandoned any proposed changes in this area.

3. Passive/investment income earned by private corporations. As the saying goes “It’s complicated” and that is certainly the case for passive income. The government significantly backed away from its original proposals in this area. Essentially the first $50,000 of passive income will be status quo - no changes. Passive income between $50,000 and $150,000 will reduce the small business limit of $500,000 on a straight line basis. Page 3 on the commentary discusses this change. There are also changes to refundable dividend tax on hand (RDTOH) related to payment of eligible and non-eligible dividends (we said it was complicated). These changes will only affect private corporations that have taxable income in excess of $500,000 and a balance in the RDTOH account and pay eligible dividends (yes, this is a run-on sentence but a very brief one compared to many in the Income Tax Act).

The best way to sum up what has happened to the changes proposed in July, 2017 is as follows (taken from Stikeman Elliott budget commentary).

Private corporations win 2-1 in quadruple overtime.

It feels good to win but what a struggle!

As always, any questions please contact us.

Best regards,

JIM M. SMITH CHARTERED PROFESSIONAL ACCOUNTANTS INC

Jim M. Smith, CPA, CA