Proposals for the tax treatment of Passive Income will be revised

The government intends to proceed with proposals to increase tax on corporate passive investments funded from after-tax business earnings, effectively double taxing the eventual distribution of passive investment earnings. However, the government now proposes that the new tax increases will only apply to passive income in excess of an annual threshold of $50,000 and will be applied only on a go-forward basis. It is expected that the draft legislation will be tabled along with the federal 2018 budget. The Chamber’s position with respect to the government’s new proposals to tax passive income is that: The $50,000 threshold is inadequate for small businesses that are saving in order to make larger investments in innovations or business growth; The threshold is too small to provide business owners with long-term earnings security; The government should not proceed with its passive income rules until a full economic impact assessment has been carried out and an approach has been developed that can ensure there will be no unintended negative consequences to business investment. The CCC has identified some next steps and dates to watch for: • December 15 – The Senate Finance Committee will release its report on the Small Business Tax changes based on the cross-country consultations it undertook during the fall in which many Chambers took an active role. • Sometime before Christmas (our bet is just before Christmas) – The government’s new rules on income sprinkling need to be tabled if the government is to meet its January 1 date for implementation. March – Budget 2018 will most likely contain draft legislation on passive investment.