In each of 2015, 2016, 2017 and 2018, the federal government passed complex amendments to the Income Tax Act. The policy underlying these changes was the notion that private corporations were enjoying unintended tax benefits that were not available to taxpayers who were not shareholders of a private corporation.
The changes were intended to remove the perceived benefits to private corporation shareholders. Consequently, the burden or impact of the changes has disproportionately affected private companies. In general terms, the changes have altered and expanded the rules for:
- Determining eligibility for the low rate of tax on business income;
- Taxation of dividends received from private companies;
- Intercorporate dividends between private companies;
- Calculation of refundable tax, including creation of two categories of refundable tax;
- Taxation of intercompany charges within a corporate group; and
- A variety of related technical issues.
These changes will increase the tax payable by many private companies and/or their shareholders. In addition, preparing corporate tax returns in compliance with the complex changes requires more time on the part of accountants and imposes significant additional costs on private companies.
We have contacted our clients to inform them of the complications these tax amendments have created. For more information on how the changes are affecting your corporate tax return, we recommend you speak to your accountant today.
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