Early Christmas Present from Trudeau & Wynne?
On November 13, 2017, the Ontario government announced their intention to reduce the provincial corporate tax rate by 1% for small businesses on income up to $500,000, effective Jan 1, 2018. Therefore, the provincial corporate tax rate will be reduced from 4.5% to 3.5%.
On October 16, 2017, the Federal government announced their intention to reduce the corporate tax rate on small businesses by 0.5% effective January 1, 2018 and 1% effective January 1, 2019. Therefore, the federal corporate tax rate will be reduced from 10.5% to 9% by 2019.
Currently, the combined corporate tax rate is 15%. The new combined corporate tax rate for small businesses in Ontario will be 13.5% in 2018 and 12.5% in 2019. That is a total reduction of 2.5% on active business income, allowing you to save more.
However, we await for the Federal governments revised plans to be released before Christmas 2017. Rumors continue to swirl until then related to sprinkling dividends to family members. The Federal government has reconfirmed they intend to release details in the 2018 budget expected in February or March, regarding the double taxation on new passive assets accumulated in small businesses.
How will this affect you?
- Assets in RRSP, TFSA RESP, IPP, existing passive assets and the first $50,000 of passive income on new passive assets in your business, will not be affected by the changes.
- New passive assets generating passive income in your business in excess to $50,000 will be subject to double taxation.
- The loss of dividend sprinkling to children has been partially offset by the 2.5% reduction in the corporate tax rate for small businesses.
How to be Proactive?
- Consider locking in capital gains from your lifetime capital gains exemption for your spouse, parents and children.
- Re-engineer your investment approach to minimize tax now and in retirement.
- Take a second look at life, disability and critical illness insurance.
It is important to re-evaluate the impact of these tax changes on your current lifestyle, retirement goals and estate planning.
Contact us if you have questions or are interested in a complimentary second opinion!