2018 Federal Budget Highlights for the High Net Worth Individual and Business Owner
We have carefully reviewed the 2018 Federal Budget papers. Instead of providing a detailed summary of all tax measures, most of which impact a small minority of taxpayers, what follows is what we feel is relevant to you.
The most important aspect of the Budget will come as a relief. Namely, business owners can continue to accumulate unlimited amounts of after-tax business profits for investment purposes in their corporations and will not be penalized as originally proposed in July 2017.
Unfortunately, smaller corporations that have investment income in excess of $150,000 will no longer be entitled to claim their small business deduction for taxation years beginning after 2018. This can translate into additional annual corporate taxes of up to $48,000 in Québec and $70,000 in Ontario.
The Budget has also curtailed a tax planning strategy whereby certain business owners with investment portfolios in their corporations were able to withdraw money in the form of dividends at a preferential overall tax rate. For taxation years beginning after 2018, this planning will no longer be available. Fortunately, there is grandfathering available whereby this change applies only for business profits generated in taxation years beginning after 2018. Steps may have to be taken in the coming months to ensure that this grandfathering is optimized.
- No changes to personal or corporate tax rates.
- No increases to capital gains taxes.
- No reintroduction of any measures abandoned in the fall from the July 2017 announcements.
- Increased reporting requirements for Trusts beginning in 2021.
- No significant changes in sales tax.
The Budget appears to be the final chapter in relation to the July 2017 passive income measures. We are pleased that the government has listened to the concerns of business owners.