Impact of the 2016 Federal Budget on Private Companies
Minister of Finance, Bill Morneau, tabled his first budget in March which included widespread tax changes. As a private business owner, there are some key highlights that may specifically affect you and your business. Below are 4 main areas of impact:
1. Corporate Income Tax Rate. Federal income tax rates were proposed to be reduced from 11% to 9% by 2019. The 2015 rate of 10.5% will be as far as the rate is reduced. It will not go down further to 9%.
2. Multiplication of Small Business Deduction. New rules were introduced to prevent the multiplication of the lower corporate rate on the first $500,000 of active business income. Some family businesses may use these structures. Therefore, private businesses will need to review how it impacts: (i) their income taxes and (ii) business operations.
3. Donations of Private Company shares. Budget 2015 proposed to provide an exemption from capital gains tax for certain dispositions of private corporation shares or real estate, where cash proceeds from the disposition were to be donated to a registered charity or other qualified donees within 30 days. Budget 2016 states that the government will not proceed with this measure.
4. Personal Rates. Prior to the 2016 Federal Budget, the government introduced higher personal income tax rates for 2016 and onwards; the top rate will increase by 4% on income over $200,000. This will significantly affect the estate taxes people may face on the death of a family member. Revisiting estate planning is likely a very good idea. For example if the estate taxes were to be funded with life insurance, how much have the estate tax gone up and is the life insurance adequate?
If you are you looking to better understand impacts of the new Budget on your business, KPMG has an on-demand webcast that provides first-hand perspectives on what the 2016 Federal Budget means for private companies via a webcast.
You can access our on demand viewing of the webcast here as we explain what adjustments you may need to make to align with the changes from the budget.