October 2, 2017 was the deadline for submissions on the July 18, 2017 proposals that target tax planning using private corporations. Public response was overwhelming. The Department of Finance (Finance) received over 21,000 submissions, including PwC’s. On October 3, 2017, Finance issued a press release outlining its next steps.
On July 18, 2017, the Department of Finance released legislative proposals and a consultation paper (referred to as “the proposals”) targeting three tax planning strategies that, in the government’s view, use private corporations to gain unfair tax advantages for high-income individuals.
Finance provided a 75-day consultation period, which ended on October 2, 2017.
For more information, see our Tax Insights “Government targets tax planning using private corporations.”
The proposals have caused deep concern as expressed by almost every industry, business and special interest group in Canada. As a result, Finance received over 21,000 submissions from interested parties, including from PwC.
PwC’s submission addresses the technical elements of the proposals. In addition to detailed commentary on the three areas of focus of the proposals, we made the following general comments:
Read our complete submission.
A press release issued on October 3, 2017, confirms Finance’s commitment to fix “a tax system where wealthy and high income individuals are encouraged to use their private corporations to pay lower tax rates than middle class Canadians,” but also states that the government will “act on what it has heard” from “small business owners, professionals and experts.”
According to the press release, the government’s next steps will be based on five key principles:
Finally, the press release includes a quote from Finance Minister Morneau indicating that the focus of any changes is on “a small number of wealthy incorporated individuals.”
Many questions remain. For example:
We expect that Finance will require considerable time to read and digest the many submissions it received. Modifying the rules, for example to ensure that family business transfers are not adversely affected, may not be straightforward.
However, given that the proposed measures addressing “income sprinkling” were to take effect starting January 1, 2018, and that measures to address the conversion of income into capital gains (“surplus stripping”) were proposed to become effective immediately on July 18, 2017, Finance recognizes that taxpayers will require guidance shortly.
The uncertainly makes year-end tax planning more challenging. For help, see our upcoming Year-end tax planner and contact us.
Although the submission deadline has passed, we encourage interested parties to continue to contact Finance to voice their concerns. As well, reach out to us with your questions.
We will keep you apprised of developments as they occur.