Tuesday, March 22, 2016

What Was Not In The Budget

Prior to the 2016 federal budget, rumors swirled surrounding the following possible changes.
·        An increase in the capital gains tax rate.
·        Restrictions on the availability of the small business tax rate for professional corporations and certain other small businesses.

Neither of the above rumors turned into reality on Budget Day.

Capital gains will continue to be taxed at half the normal tax rate.  This compensates somewhat for the effect of inflation over time, as part of any capital gain is usually attributable to inflation.

The small business rate will continue to apply much as it has in the past.  The government announced that it has completed its review on how the small business rate applies in the context of businesses that earn income principally from the rental of property (such as a storage business).  The government has decided to make no changes to the rules at this time.

The small business rate is a low rate of tax that applies to a qualifying corporation on its first $500,000 of active business income.  While the basic rules applicable to this rate continue to apply, the federal government will introduce legislation targeting business structures that attempt to get around the annual $500,000 income limit.  I will describe these rules in a future blog.

Among other announcements, the government has decided to proceed with changes to the amortization of the cost of goodwill and other forms of intangible property.  Such amortization will move to the capital cost allowance system that applies to most equipment and other forms of business property.  This will eliminate the separate amortization system that had applied to goodwill in the past.

Charities will be disappointed that the government has chosen not to implement the 2015 proposal that would have provided an exemption from capital gains tax for certain sales of real estate or private corporation shares to the extent that the proceeds were donated to a charity within 30 days of the sale.  The government did not give any reason for this decision.

As in the past, this firm will comment on specific budget proposal over the next few weeks.  Stay tuned for more on our Tax Talk Blog!

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The above article provides general commentary of an educational nature. It does not constitute advice for any specific person or any specific set of circumstances. Because circumstances vary, readers should consult professional advisers in order to obtain advice that is applicable to their specific circumstances.