Passive Investment Income and the Small Business Deduction Grind:
The federal government put forward a consultation paper in July 2017, that it was looking to prevent companies deferring excess income in the corporation to use it to earn passive investment income after paying small business tax rates.
Canadian-controlled private corporations (CCPCs) pay corporate income taxes on small business income at 9% federally (2019 onwards). The small business limit (the amount of income annually eligible for the small business rate) is $500,000 federally and in most provinces. Above $500,000 the general Federal tax rate is 15%. For Ontario, the small business limit is $500,000. Up to $500,000 the Ontario tax rate is 3.5% and above $500,000 it is 11.5%.
Carbon Tax & Climate Action Incentive Payments in Ontario
What is Carbon Tax?
The Carbon Tax is one that greenhouse gas emitters must pay per tonne of carbon dioxide emitted from burning carbon-based fuels. To motivate emitters to change their practices to decrease emissions, the price goes up over time, so households and industries have time to adjust and adopt less carbon-heavy practices. This is set to be implemented from April 1,2019.
This has come about from Canada’s commitment under the Paris Agreement to work towards reducing global warming. In response, the federal government established Pan-American Framework on Clean Growth and Climate Change, which set carbon tax at a minimum of $20 per tonne in 2019, increasing by $10 per year until it hits $50 per tonne in 2022.
Income Sprinkling Rules / Tax on Split Income (TOSI) – enacted Jun 2018
Legislation that contained the legalization of Cannabis obtained Royal Assent on Jun 21, 2018 (Bill C-74). Included in this Bill, were also the complicated rules covering Income Sprinkling, widely referred to as TOSI (Tax on Split Income) that were announced in December 2017.
The government’s objective is to eliminate the benefits of income splitting where the recipient of the income (a related family member) has not made a sufficient contribution to the family business. To accomplish this, they are subjecting income received under these rules to the highest marginal tax rates, thus eliminating any advantage achieved through income splitting. Since Jan 2000, there were such rules in place for those under the age of 18 (known as “Kiddie Tax”) – this has now been expanded to cover a broader age category.