September 11th, 2018

By Kevin Tong.

On June 21, 2018, Bill C-74 received Royal Assent and was passed into law by the Canadian government.

Effectively, this means that many of the tax changes proposed by the federal government over the last year are now official. These changes include:

  • Implementation of new tax on split income rules (“TOSI”)
  • Implementation of new passive investment income rules for Canadian-controlled private corporations
  • Reduction in the federal small business tax rate

The new TOSI rules in particular have received significant publicity since they were originally proposed on July 18, 2017. Also known as “income sprinkling” rules, these rules generated significant controversy within the tax and business community.

Concerns were raised over the administrative cost of enforcement of the new rules, the technical ambiguity and complexity, the preferential treatment of certain industries over others, the resulting complications on intergenerational transfers, the increased difficulty of tax compliance, and the overall tax cost to entrepreneurs. The new TOSI rules are especially punitive towards small, owner-managed businesses and incorporated professionals.

Although the federal government has taken steps to address some of the above concerns, many of the criticisms remain valid. The TOSI legislation is one of the most complex sections of the Income Tax Act.

Due to their complexity, the new TOSI rules are difficult to summarize. Moodys Gartner Tax Law LLP has done an admirable job of this in preparing their TOSI flowchart. As the chart illustrates, these rules contain numerous mechanisms and exceptions.

The impact of the new TOSI rules depends on the specific circumstances of each business. Walsh King is committed to performing this analysis for each of our clients and recommending appropriate strategies.

Please contact us if you have any specific concerns about how the new tax rules will affect your business.

Posted in Tax Legislation

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