CCPC RDTOH Legislation Receives First Reading | KPMG | CA

CCPC RDTOH Legislation Receives First Reading

CCPC RDTOH Legislation Receives First Reading

Canadian Tax Adviser, December 15, 2015. Bill C-2, which enacts tax rate changes for individuals and trusts as well as consequential changes affecting Canadian controlled private corporations, received first reading on December 9, 2015. The bill, previously presented in a Notice of Ways and Means Motion (NWMM) dated December 7, 2015, includes a reduction in the federal personal tax rate for income between $45,283 and $90,563 to 20.5% (from 22%) and an increase of 4% in the personal tax rate for income over $200,000 to 33% (from 29%) starting January 1, 2016. The bill also reduces the Tax-Free Savings Account contribution limit to $5,500 per year (from $10,000 per year) starting in 2016.

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The included tax measures are considered to be substantively enacted for purposes of IFRS and ASPE as of December 9, 2015. 

Effects on Canadian controlled private corporations

Bill C-2 contains changes to several tax measures affecting Canadian controlled private corporations as a result of the introduction of the top personal income tax rate of 33%. Bill C-2 contains measures that: 

  • Increase the refundable tax on CCPC's investment income to 10 2/3% (from 6 2/3%), effective for tax years ending after 2015 
  • Amend the definition of refundable dividend tax on hand (RDTOH) effective for tax years that end after 2015, to adjust: 
    • The percentage of aggregate investment income that can be included in RDTOH to 30 2/3% (from 26 2/3%) 
    • The foreign tax credit reduction related to foreign investment income to 8% (from 9 1/3%) of foreign investment income
    • The adjustment factor for taxable income of a corporation for the year that exceeds the total of the portions of that income that has benefited from either the small business deduction or foreign tax credits to 30 2/3% (from 26 2/3%)
    • The gross up factor for foreign non-business income to 100/ (38 2/3) from 100/35 
  • Increase the dividend refund rate to 38 1/3% (from 33%) effective for tax years ending after 2015 For tax years beginning before 2016, the above rate changes are prorated for the number of days in the tax year that are after 2015.
  • Increase the Part IV tax rate to 38 1/3% (from 33 1/3%) for tax years ending after 2015
    • For tax years beginning before 2016, assessable dividends are taxed at 33 1/3% if they are received before 2016 and at 38 1/3% if received after 2015 
  • Increase the percentage of unused non-capital losses and farm losses that may reduce Part IV tax to 38 1/3% (from 33 1/3%) for tax years that end after 2015. For tax years that begin before 2016, losses applied to reduce Part IV tax are used first to offset assessable dividends that are subject to the higher 38 1/3% rate.

For more information, contact your KPMG adviser. 

Disclaimer

Information is current to December 15, 2015. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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