As an owner-manager, the end of the year is an excellent opportunity for you to consider ways to improve your tax position.
You still have time to manage taxes for yourself and your incorporated business for 2017 before the new year arrives. This year it is especially important that you consider year-end tax planning because of the government's private company tax proposals that may result in increased taxes in 2018 for many private companies and their shareholders.
New tax rules for private companies are on their way
While doing your review this year, keep in mind that the way private companies and their shareholders are taxed will be changing in 2018. Major proposals were floated in a government consultation paper released this summer, before being modified in October after a spirited public consultation process. As a result, owner-managers of private companies will need to re-evaluate whether it makes sense to pay dividends to family members in lower tax brackets in 2018. Finance is proposing to extend the tax on split income rules to certain adult individuals. If the amount of dividends that these individuals receive is "unreasonable" under the circumstances, they will be taxed at the top marginal tax rate—regardless of their own personal tax rate. Under the new rules, a "reasonableness test" will apply to split income, which includes income from a related individual's business or income from a corporation where a related individual has influence. The reasonableness test would look at factors such as labour and capital contributions to the business, risk assumed and previous returns or remuneration. These new rules are proposed to be more restrictive for family members aged 18-24.
Also, many private companies need to be aware of how the government's proposals will change the way that income earned on passive investments inside of private companies will be taxed (although details about the new rules aren't expected to be available until the Federal Budget in 2018).
In both cases, we recommend you set up a meeting with your KPMG advisor before the end of the year so that you can carefully review how these changes might affect your unique tax situation.
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