After more than nine months of waiting, business owners have finally learned how income on corporate savings will be taxed moving forward. These have been uncertain times, as the possibility of 70%+ tax rates for corporate investments commanded headlines and media stories across Canada. Many business owners were concerned that the proposed rules would threaten their ability to save for retirement, family leave, bad economic times or future business expansions.
When the budget was tabled in the House of Commons on February 27, 2018, you could almost hear the sigh of relief around the country, or at least from business owners. Even though the “grandfathering” that was promised seems to have vanished, the changes are much less punitive than originally proposed. Very generally, the new rules do not create additional taxes, but rather limit the tax deferral opportunities of saving in a corporation, which is exactly what the government set out to do last July.
The new rules can be broken into two separate measures, a reduction to the income eligible for the small business tax rate and changes to the refundable tax regime. These rules are each discussed in the attached document below.