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Private Corporation Tax Proposals - Federal Government Steps Back from Tax Proposals Impacting the Conversion of Income into Capital Gains

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On October 19, the federal government continued its announcements about revisions to the Private Corporation Tax proposals originally introduced on July 18. The announcement focused on the tax proposal that would have restricted the ability to convert income such as dividends into capital gains. The government announced today that it will not move forward with these changes at this time. Instead they will work with business owners, which include incorporated professionals, to ensure a tax system that allows for an efficient intergenerational transfer of businesses including upon the death of the business owner.

Proposed tax changes related to the conversion of income into capital gains: What’s changing and what’s not

1. The government will not move forward with proposed legislation that would have restricted the ability for a business to convert income into capital gains

Tax planning strategies that convert what would have been regular income into capital gains are often used to facilitate intergenerational transfers of businesses including upon the death of the business owner. For example, the pipeline strategy is one strategy that, when used in estate planning, helps to maximize the value of the business or its proceeds for beneficiaries, while also mitigating the risk of exposure to double taxation on the death of an owner of a private corporation. The business community expressed concern during the consultation period that eliminating access to the pipeline strategy significantly increased the risk of exposure to double taxation.

2. The government indicates that over the coming year it will continue to consult with business owners to work towards an efficient tax system to facilitate intergenerational transfers.

What does this mean to incorporated physicians and other professionals?

  1. The announcement is positive news for incorporated physicians and other professionals who include the pipeline strategy in their estate planning, as pipelines will remain a tool to consider. 
  2. As always, estate planning requires careful consideration to ensure proper implementation.

MD will continue to monitor as additional announcements are made over the coming weeks. We encourage you to remain in touch with your MD Advisor and tax advisor who can help you understand the potential consequences of these changes on your financial plan.

Read more:

Federal Government Introduces New Threshold to Passive Investment Income

Federal Government Changes Tax Rate and Tweaks Income Sprinkling

Proposed Tax Changes to Private Corporations: What Physicians Were Asking at General Council 

Tax Planning Using Private Corporations, What’s Next: A Summary of Finance Announcements 

About the Author

Eileen Maltinsky CPA, CA, CFP is Vice President with the Taxation Services Team at MD Financial Management. She leads the team of tax professionals responsible for providing tax solutions, tax planning and tax compliance for the MD group of companies.

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