Thursday, October 19, 2017

Holding Corporation Investment Income

On October 18, the federal government released some tidbits of information about changes to its proposals in respect of investment income earned by corporations that invest active business earnings that have been taxed at the small business rate.  In July, the government had proposed to impose special rules on such earnings.

While we will have to wait until the 2018 federal budget for details, the October 18 announcement indicates the following.
  • Any new rules will apply only on a go-forward basis.  Presumably, this means (at the earliest) the date of the 2018 federal budget.  Federal budgets are usually in the spring of the year.
  • Any new rules will apply to neither past investments nor income earned from those past investments.  Presumably, past investments refers to investments in place at the time that the new rules come into effect.
  • Any new rules will apply only in respect of passive investment income of a corporation that exceeds $50,000 per year.  Presumably, this is in addition to any income earned from past investments.
This is welcome news, although much will depend on the details that will be released as part of the 2018 budget.  Presumably, the proposals will have to set up notional tax accounts, one for tracking income from pre-budget investments and one for tracking income from post-budget investments.  Presumably, a corporation will be able to sell pre-budget investments and re-invest the sale proceeds without losing the grandfathering status.  But we will have to wait and see.

It seems that the government is releasing snippets of information about changes as trial balloons to gauge reaction.  Or perhaps the government is merely following the time-honored advice given by Machiavelli in The Prince:  always release good news slowly over a long period of time.

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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.