Liberals drop plan to restrict lifetime capital gains exemptions

Prime Minister Justin Trudeau, Finance Minister Bill Morneau and Small Business and Tourism Minister Bardish Chagger took a quick trip to Stouffville, Ontario on Monday morning to announce the lowering of small business tax rates, and a change to the controversial small business tax proposal they introduced in July.

“We made a promise to middle class Canadians that we would lower their taxes and make sure everyone pays their fair share,” says Finance Minister Bill Morneau. “We will be taking the next step towards greater tax fairness by addressing tax planning strategies that benefit the wealthiest, while fulfilling our commitment to lower the small business tax rate to 9 per cent.”

The small business tax cut follows through on a commitment the Conservatives made in their final budget in power and a campaign promise the Liberals made in the 2015 election.

Today’s announcements:

  • The federal government intends to lower the small business tax rate from 10.5 percent to 10 percent effective January 1, 2018, and 9 percent, January 1, 2019. This is the rate applied to a Canadian-controlled private corporation’s income, up to $500,000 (meaning the maximum savings will be $7,500.)
  • The government plans to move ahead with its proposed measures to restrict income splitting or ‘sprinkling.’ Only corporations with family members who “meaningfully contribute to the business” will be exempt from proposed changes. According to the government, approximately 50,000 family-owned private businesses (or 3 percent of CCPCs) use income sprinkling.
  • Proposed measures limiting access to the Lifetime Capital Gains Exemption will no longer be considered in the tax proposal.

The government launched consultations on the proposed changes on July 18. The Department of Finance has since received over 21,000 written submissions.

The department says the consultations identified potential unintended consequences from trying to address the “multiplication” of the Lifetime Capital Gains Exemption, citing concerns about the impact on intergenerational transfers of family businesses as an example. Based on this feedback, the government says it will not move forward with limiting access to the LCGE. (More on this specific issue here.)

Conservative Party leader Andrew Scheer says he believes the proposal to be a response to a “political crisis,” referring to the backlash surrounding the Liberal government’s proposed tax changes.

The Liberals will be announcing further changes to the small business tax proposal over the next three days.

The government says it will also be releasing revised draft legislation outlining the proposed changes, which will be effective for the 2018 tax year.

More to come.

 

RealAgriculture News Team

A team effort of RealAgriculture’s videographers and editorial staff to make sure that you have the latest in what is happening in agriculture.


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