On October 18, 2017, the Federal Government announced that it will move forward with proposals to limit the tax deferral opportunities related to passive investments held by private corporations.
The Federal Government focused on the general framework for the proposals; however, specific details were not provided, including the effective date of the proposals or which approach or method (as set out in the consultation paper) would be implemented. The Government stated that the details of the proposals together with the draft legislation will be released as part of the 2018 Federal Budget.
The Federal Government stated that the proposals would ensure that:
- Past investments, and income earned from those investments, would not be impacted by the proposals
- Businesses would be able to save for contingencies (such as possible downturns) and future investments in growth.
- A $50,000 annual threshold on passive income on go-forward investments would be available to business owners for various purposes (including parental leave, sick days and retirement). There would be no tax increase on investment income below this threshold.
- Incentives would be maintained to enable Canada's venture capitalists and angel investors to continue to support investment in the next generation of Canadian innovation.