Canada passed its federal budget yesterday, abandoning the highly unpopular measures published last year for taxes on passive investment income earned by Canadian-controlled private companies.
The unpopular proposals drew widespread criticism for their overly burdensome effects on small and medium-sized companies, and forced the embattled finance minister Bill Morneau to belatedly acknowledge his previous proposals were disproportionate.
The government yesterday pledged to bring about a deduction for small businesses whose passive income exceeds C$50,000, in a simplification of existing rules.
Ottawa’s proposal also caps refundable taxes that private companies receive on the payment of dividends.
The new laws will come into effect in 2019. Moodys Gartner, the law firm, described the measures as “a big relief,” saying “The new approach will be much simpler to comply with, will not require the tracking of new and legacy pools of passive investments, and will target only private corporations with more than C$50,000 in passive investment income per year.’
“While the above measures will still take a bite out of certain entrepreneurs’ pockets, it is a whole lot better than what the government was proposing last July, they deserve credit for listening to the concerns of the business community.”
The Budget also set out new reporting standards for family trusts, which will be required to disclose the identity of all trustees, beneficiaries and settlers of each trust.