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.