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Federal Tax Changes & Ag Update

Tax Planning

Federal Tax Changes – Update

Now that the initial commentary period is over and the government received a spirited response from farmers, ranchers, doctors, lawyers, accountants, and small business they have changed their turn in regards to corporate tax changes. They have backed off on most of the proposed changes except for:

  1. Income Sprinkling – If you have a small business corporation or family trust and you share income with your spouse or children you will be impacted.
  2. Passive Income – If you have a corporation that holds investments and earns inactive income the proposed legislation will increase the amount of tax that you pay on your investment income in your corporation.

A reasonability test is coming to determine what members of a corporation and the extent they will be taxed because of income sprinkling. Going forward corporations should document labour and capital contributions each member continues to provide the company.

Passive income will be capped at $50,000 (grandfathered) and will not be subject to higher tax. This equates to a $1,000,000 investment earning 5% per annum.  Remember farm land cash rent falls into this category.

The Federal Small Business rate will be reduced to 10% Jan 1, 2018 and then further reduced to 9% Jan 1, 2019. Sounds good, right? What you need to know is that the dividend tax credit for non-eligible dividends (common source of income from corporations to its shareholders) is being reduced over the same time period.  Pay less corporate tax in exchange for paying higher personal tax.

Ag Update

On the Ag side the capital gains exemption limit, inclusion rate and use remains unchanged. The ability to defer grain sales tickets was also reviewed by finance and after strong feedback; the gov’t has decided to leave the practice alone. For those farmers and ranchers affected by drought this past growing season the gov’t has approved an initial list of regions to be eligible for the livestock tax deferral.  The deferral is based on the reduction of breeding stock only.  The higher amount of animals sold because of lack of pasture and feed will increase the amount available for deferral.  A line half way between Edmonton and Calgary running east and west covering the south part of the province has initially been designated. Ranchers affected by Bovine Tuberculosis also have been offered income deferral options.  Any income received in 2016 and 2017 can be deferred 100% with 83% to be claimed in 2018, 11% claimed in 2019 and the remaining 6% claimed in 2020.

On behalf of Endeavor Chartered Accountants, thank you for your past business and we look forward to serving you in 2018? Merry Christmas and Happy New Year!