The CRA and Private Corporations for 2018

We endeavor to provide up-to date information at all times.  Please ensure that before acting on anything you see here (or elsewhere for that matter) that you consult your tax advisor or accountant.

Income Sprinkling (or Income Splitting)

 

Sprinkling (splitting)  income from a corporation among family members is a strategy to reduce the overall tax paid by the family where rather than having one individual receive all of the income, the overall tax paid by the family may be reduced. 

Payroll - For most small businesses, there will be no change when family members are paid through payroll or subcontract because these payments will have been based on a timesheet showings worked or invoice indicating the work that was done.  Controls will have already been in place.

Dividends - This is where things get more complicated.  As a default, we suggest that unless family members work in the business at least 20 hours per week that they not receive a dividend.  There are exceptions to this that you should consult with your accountant about.

Passive Income

The Government will move forward with measures to related to passive investments, and will release draft legislation as part of Budget 2018. 

On October 18, 2017, the Department of Finance announced that they are moving forward with measures to limit tax deferral opportunities of passive investments within a private corporation through additional tax on passive income in excess of an annual threshold. For most small business, this will have little, if any, effect but we need to wait to see the legislation to be sure.

The Department of Finance has determined that an annual passive income threshold of $50,000 per year (based on $1,000,000 of passive investments and an assumed return of 5%) in a private corporation will provide sufficient savings for business purposes and personal savings (funding for sick leave, parental leave and retirement).

The Department of Finance has confirmed that the additional taxes for passive income over $50,000 per year will apply on a go-forward basis, thus ensuring future income from current passive investments will not be subject to the new passive investment regime. The Department of Finance stated that it is examining the key design aspects of the passive investment rules to consider circumstances in which the new rules should not apply. Details of how these rules will operate along with draft legislation will be released with the 2018 Budget.

What are the corporate tax rates?

Federal & Alberta Tax Brackets and Tax Rates for active income from a corporation with less than $500,000 taxable income and less than $10,000,000 capital assets:

                2018                                                          2017                         

Federal                          10.00%                Federal                           10.50%

Alberta Provincial            2.00%                Alberta Provincial              2.00%

Investment income is taxed at 38.7% federally and 12% provincially in Alberta.

2018

February

2018 January

2018 January

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