If you are an incorporated small business or professional your taxes may soon be increasing significantly. As reported on our May tax blog, tax rules for incorporated small business are changing, and we now know the specifics.
Will the new tax rules affect my business?
You will be impacted by proposed changes if:
- your business pays dividends or wages to family members under age 24 or other family members that do not significantly contribute to your business;
- your business has investments generating passive income (i.e., rent, interest, dividends);
- you are selling or reorganizing your business, or buying out a family member;
- the shares of your business are held in a Trust;
- you are planning on minimizing income taxes for your estate
How bad will it hurt?
Depending on the amount of income splitting you generate with low-income family members and the ownership structure of your business, you may:
- pay up to 50% more tax;
- have restricted access to your lifetime capital gains exemption (currently $835,715);
- have double taxation on the sale of your business or death
Is there any relief?
Under the proposed legislation, there may be an opportunity for a Trust to use the lifetime capital gains exemption before it’s lost. This will require advanced planning and likely a valuation of your business. This opportunity expires after 2018.
When will changes take place?
The current proposed legislation will be open for public comment until early October 2017 after which it will become law, subject to any legislative amendments.
What should I do?
If you are a business owner, contact Sloan Partners as soon as possible. We will provide you with appropriate guidance and tax planning to best prepare for these proposed tax changes.
The proposed changes will fundamentally change business remuneration and tax minimization strategies that have been around for decades. As your tax experts, Sloan Partners will continue to explore these changes and the impending impact in detail in future e-mails and blog posts.
Roman Belenky, CPA, CGA, BAS, is a supervisor at Sloan Partners focusing on tax planning and compliance. Feel free to contact Roman firstname.lastname@example.org or call 416-665-7735 (ext. 227) for all of your tax planning needs.
Disclaimer: This article is intended for educational and informational purposes only. It is not intended in any way whatsoever to provide tax advice. The reader should be aware that legislative changes have been proposed and are subject to change. None of the persons involved in the preparation of this article accepts any responsibility for its contents or the consequences that arise from its use.