On July 18, 2017 the Department of Finance released a consultation paper, Tax Planning Using Private Corporations, targeting the following three tax planning strategies involving the use of private corporations:
- Income sprinkling using private corporations,
- Holding a passive investment portfolio inside a private corporation, and
- Converting a private corporation’s income into capital
The consultation paper sets out the nature of these issues in more detail, outlines some potential solutions to address them and invites input from Canadians. Proposed legislation targeting income sprinkling (including the multiplication of the lifetime capital gains exemption) and converting income into capital gains was also released along with the consultation paper.
The proposed measures, if implemented, will have a significant impact on private companies.