This week marked the one-year anniversary of the launch of the government’s much-maligned plan to overhaul the tax rules governing Canadian controlled private corporations (CCPCs), which originally proposed to shut down three areas: income sprinkling of dividends among family members, the accumulation of passive income inside of CCPCs, and surplus stripping, whereby dividend income is effectively converted into lower-taxed capital gains.
The proposal regarding surplus stripping has been abandoned (at least for now), but legislation limiting income sprinkling has been passed and is effective for 2018. Similarly, a new rule addressing the accumulation of passive income in a CCPC by restricting the corporation’s access to the small business deduction’s low tax rate once its passive investment income exceeds $50,000 will begin applying in 2019.
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