Do you own an incorporated small business?
The federal government is proposing some significant changes to the tax rules around these entities. Coming into effect in 2018, these changes will mean significant changes for the way small businesses file their taxes. Be sure you and your corporation are ready to adapt your tax practices accordingly.
Here are a few of the proposed changes that you should know about:
Increase in Dividend Tax and Income Sprinkling
The government will increase the tax on dividends paid to family members who are shareholders of a small business corporation. Under the new rules, recipients of dividends from the corporation will be taxed at the highest marginal rate. This change will make it more difficult to distribute wealth within a family from a small business corporation.
Passive Investment Income
Under the old tax regime, holding money in a fund under the title of the corporation was a good way to shelter income. Presently, corporate income is eligible about 15 per cent tax rate (varying by province). Under the new tax rules, income to a corporation will be taxed at a higher rate, as will income as dividends. This means you’ll wind up paying more tax over all if you invest inside the corporation and then eventually pay that income out to yourself as dividends later on.
Tax on Investment Income or Capital Gains
Some corporations have realized that paying themselves in capital gains instead of salary can be a money saver with the tax man. Amendments are proposed in the new tax rules to change the practice of “anti-surplus stripping” and will effectively render this practice obsolete.
As you can see, there are some significant changes coming in the way that incorporated small businesses are taxed. Get informed on the best strategies and options available to you under these new rules and reduce your taxes by contacting Ati Bookkeeping and Taxes