Finance Minister Bill Morneau made a second announcement regarding changes to the Liberals’ small business tax proposal on Wednesday, focusing on the passive investment income policy.
He said the government will allow up to $50,000 in passive income in a year before higher tax rates kick in to provide flexibility for business owners who want to hold savings in their corporation, referring to saving for “things like maternity leave, sick leave and their retirement.”
Based on a 5 percent rate of return, that’s the equivalent of $1 million in savings, which Finance Canada says is exceeded by only around 3 percent of corporations.
The Minister also said all past investments and income earned from those investments will be protected.
Currently, an individual who is a shareholder in a corporation can defer paying personal income tax on business profits by leaving that money inside the corporation. Those profits are taxed at the lower corporate rate. Higher personal tax rates would only be applied as the money is withdrawn from the company.
The proposal unveiled in July referred to neutralizing the advantage of leaving a passive investment in a corporation starting in 2018.
For an incorporated farm, this passive investment income might include returns from GICs, mutual funds, stocks, bonds, or rental income from land or buildings.
AgriInvest income is considered active business income, and the government says it intends to maintain this approach.
More to come.