Farming and fishing corporations may be eligible for the small business deduction (SBD).
The new retroactive measure, which Finance introduced as draft legislation on May 5, 2017, applies to farming and fishing corporations that sell their products to arm's length agricultural and fishery co-operatives. The income from these sales might otherwise be considered "specified corporate income" and not be eligible for the SBD.
The draft amendments, which would apply to taxation years beginning after March 21, 2016, were included in a package containing one page of draft legislation and five pages of explanatory notes.
Finance indicates they are seeking public comment on the draft legislation.
The draft legislation introduces the concept of "specified cooperative income", which is income that arises from the sale of farming products or fishing catches (included in a corporation's farming or fishing business) to a qualifying purchasing corporation. Under the draft legislation, this income will be excluded from the definition of specified corporate income. Therefore, the specified corporate income rules will not deny the farming or fishing corporation's access to the SBD for such income.
A qualifying purchasing corporation includes an arm's-length "cooperative corporation" (defined under subsection 136(2) but extended to include fishing businesses).
A qualifying purchasing corporation also includes an arm's length corporation held directly or indirectly by a cooperative corporation. In this instance, the selling corporation or one of its shareholders (or certain other non-arm's length person) must hold a direct or indirect interest in the cooperative corporation. However, the selling corporation's income must not otherwise be specified corporate income but for the fact that the selling corporation or one of its shareholders (or certain other non-arm's length person) holds a direct or indirect interest in the cooperative corporation.
Patronage dividends that are paid by a cooperative out of its profits to its members (as described in subsection 135(7)) are specifically excluded from the definition of specified cooperative income.
For more information, contact your KPMG adviser.
Information is current to May 09, 2017. 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