Policy Alert: Finance Canada Is Considering Major Changes to How Corporations Are Taxed


Chambers of commerce are uniting against Finance Canada’s proposed tax changes. A campaign and website under the theme #ProtectGrowth were created to voice businesses’ concerns and provide the government with a clear picture of the small businesses it is targeting with these changes.

The Dufferin Board of Trade encourages our members and the Dufferin business community to write your local MP to speak to how you and your business will be affected by the changes and sign the petition.

Click here to write your MP (password: chamber2017).

Sign the petition

If you do not wish to utilize the Protect Growth website to write your MP, please find a template letter below.

Template letter to MP

Contact information for David Tilson, MP Dufferin – Caledon

229 Broadway, Unit 2
L9W 1K4

Telephone: 519-941-1832
Fax: 519-941-8660
E-mail:[email protected]

The Department of Finance Canada is considering major changes to how corporations are taxed. The proposed rules could have a significant impact on many Canadian businesses: potentially raising taxes, increasing the administrative burden on SMEs and heightening the impact on family-run businesses.

On July 18, Finance Canada launched a consultation on how “tax-planning strategies involving corporations are being used to gain unfair tax advantages.” The document contains proposed policies to close these “loopholes.” There are four key changes that will affect business:

  1. Sprinkling income using private corporations: The government wants to tighten rules to prevent a business owner from unfairly transferring income to family members who are subject to lower personal tax rates. In certain circumstances, owners would have to demonstrate that wages and dividend payments are “reasonable.”
  2. Multiplying the Capital Gains Exemption: When an individual sells a small business, the first $850,000 of capital gain is exempt from taxes. The government wants to prevent tax planning structures that enable multiple family members to use their exemptions.
  3. Reducing the tax deferral advantage on portfolio investment inside a corporation: Currently, an owner can accumulate portfolio earnings inside a corporation and pay corporate income tax rates (which are generally much lower than personal rates). The owner defers paying personal income or dividend taxes until the money is taken out of the business. The government is considering alternatives that would reduce this tax advantage.
  4. Converting a private corporation’s regular income into capital gains: Income is normally paid out of a private corporation in the form of salary or dividends that are taxed at the owner’s personal income tax rate. In contrast, when a business is sold, it is taxed as a capital gain, where only one-half of capital gains are included in income, resulting in a significantly lower tax rate on income that is converted from dividends to capital gains. The government wants to tighten the rules to prevent certain tax planning structures, but it is open to more favourable treatment for genuine family business transfers.



Information courtesy of the Canadian Chamber of Commerce.