The Minister of Finance, Bill Morneau, announced that the government's federal budget will be tabled on March 22, 2017. Last year's Canadian federal budget came in with a whopping $29.4-billion deficit and notable tax changes in the area of the small business deduction eligibility, among others. There were a number of items promised by the Liberal government during its campaign that were not announced in last year's budget. Will the Liberal government hold true on those promises in the 2017 budget? How will those potential tax changes impact business owners and individuals? Some areas to watch are outlined below.
Capital gains crunch
There is speculation that there could be an increase in the taxation of capital gains. Current tax rules provide that only 50 per cent of a capital gain is included in a taxpayer's income. This is a change we were surprised was not in last year's budget, so keep an eye on a potential increase to the capital gains inclusion rate in this year's announcement. A rate jump to 75 per cent or 2/3 (which it has been historically) could be forthcoming.
Whether it's investment (such as real estate or equity investments) through a corporation or your own individual portfolio, potential changes could affect your after-tax proceeds. If you are contemplating selling capital property (such as real estate, equity investments, etc.) in the near future, consider implementing a tax plan before the budget date to maximize your after-tax proceeds.
Small business deduction smack down?
Budget 2016 took aim at those seeking to multiply access to the small business deduction and proposed to eliminate access to the lower small business tax rate for certain members of a partnership providing services through a Canadian-Controlled Private Corporation (CCPC).
The government could choose to build on this in the upcoming budget by further curtailing access to the small business deduction (which provides a lower preferential tax rate on a CCPC's first $500,000 of active business income) to corporations that meet certain criteria. An example of this could be a new eligibility requirement for the number of employees, which would be particularly problematic for professional corporations, given their inherently smaller staff sizes.
A stop to generous stock benefits?
There has been concern from industry over the government potentially limiting the deduction for employee stock options. Under the current taxation model, the deduction allows certain stock...