Two Ways The Federal 2018 Budget Will Affect
Business Owners Going Forward

Finance Minister, Bill Morneau, delivered the majority Liberal governments third Federal Budget on February 27, 2018. The 2018 Budget announces no tax rate changes either personally or corporately and confirms the corporate tax rate reductions previously announced in 2017. The update is good news for the most part.

After nearly 8 months of uncertainty, business owners can now focus on business!

Two ways the Federal 2018 Budget will affect business owners going forward are:

  1. Sprinkling dividends to children in University will no longer be allowed. If you don’t plan, funding your children’s education will now cost twice as much.

  2. For every $1 of taxable corporate passive income above $50,000 annually, will attract between $0.90 and $1.20 of incremental tax. For example, if you make $60,000 annually in passive income, the last $10,000 of income will cost you $10,000 of tax. This new tax on passive income does not apply when you retire, nor does it apply if you have $15M of retained earnings in your company.

Business owners should be reviewing their investments, spending habits and insurance, to proactively address these tax increases. If you are successful and have saved or will save more than $1 million in your company, your passive income could be subject to 100% taxation.

Three planning tips to keep in mind to avoid the tax increase on passive income are:

  1. Businesses that continue to generate active/operating income should be careful as to the amount of passive income generated in their portfolio.

  2. Consider investing in active assets including owning rather than renting your facilities.

  3. Upgrading equipment that helps you lower business operating costs.

Now more than ever, it pays to proactively plan your financial future!



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