Passive Income Tax Changes Relaxed

In the summer of 2017, the federal government proposed changes to the taxation of passive investment income of private corporations in Canada. Following angry feedback to the original proposals, the government introduced adjustments in their spring budget. The new measures they introduced will be applicable to company’s tax years beginning after 2018. In both sets of proposals, if a company earned over $50,000 of passive investment income, they would have been subject to new taxation rules. The first proposal would have resulted in an increase to the tax rate on investment income. In their revised proposal, rather than increasing the tax on investment income, the budget proposed to reduce the amount of small business deduction that would be available to a company that earned over $50,000 of passive investment income.

The small business deduction allows a private company to earn up to $500,000 at the lowest federal corporate tax rate. If a business earns passive investment income over the $50,000 threshold, their available small business deduction limit will be reduced. If this
income is greater than $150,000, the small business deduction will be eliminated.

One of the main concerns with the original proposal was that one time capital gains could push a company’s passive income over the threshold.

In response, the government has excluded capital gains on assets used in an active business by a company or a connected company; however, no adjustment has been made for gains on sales of passive investments.

Furthermore, capital losses from prior years are excluded, so taxpayers are unable to offset current gains with previous losses to reduce their income below this threshold.

Funding opportunity

The Services for youth program has a “Career Focus” page.  It details funding of up to $16,000 for employers who may be hiring post-secondary students in a career position.  This enables them to gain work-place experience in a position related to the career for which they have studied.  It also helps employers finance a term employee.  It is a continuous intake program, but it is noted that applications should be sent about 4 months prior to the anticipated start date.

You can get further information on this program from Service Canada’s Youth Services Page on Career Focus

If you are after the program application because you already have that perfect post-secondary student in mind, Service Canada has that has well.

And if you do participate in this program, please let us know how it goes for you.  We are interested in hearing your feedback.