Koroll & Company Blog

Every business owner in Canada is required to report business income when they file their taxes each year, and many of these business owners are also required to charge and remit sales tax on these revenues.

To do so, business owners, whether sole proprietorships, partnerships or corporations, are required to open a GST/HST account. 

Previously, we discussed proposed changes to passive investment income earned by private corporations detailed in the 2018 Federal Budget.

The changes proposed two new measures. The first is a reduction of the business limit for passive income earned over a specific threshold and the second will limit the refundability of taxes paid on investment income. 

The 2018 Federal Budget brings forth several changes that could affect you both as an individual taxpayer and as a business owner.

For information on changes related to individual taxpayers, read our blog – 2018 Canada Federal Budget Commentary - Part 1: INDIVIDUALS and FAMILIES.

Looking at the Budgets proposed changes, in terms of businesses, the following will discuss several changes that could affect your company’s tax planning strategy on a go forward basis. While there are many new proposals, some of the proposed measures, such as alterations to the management of passive investment income and income sprinkling, may be familiar to you, as they were originally introduced in 2017.

In the past, parents who owned or operated corporations would have their minor children, directly or indirectly, subscribe to shares or invest in partnerships, which provided management services to the parent’s company.

They would then declare dividends on these shares, which would be tax-free, as these minors had lower income.

Most often, this income would be held in trust for the child.

The trust would then be used to pay for the child’s expenses – school, camp, extra curriculars.

This process became known as income sprinkling.

Global Intangible Low-Taxed Income, known as GILTI, is a newly introduced provision that requires United States shareholders to include additional earnings, in their gross income, for income derived from controlled foreign corporations (CFC).

Just about any financial or investment transaction can now be carried out online, and many Canadians conduct most or all of their financial affairs in an online environment, whether through their financial institution’s web-based banking and investment services or by using mobile apps.

The shift to managing one’s financial matters online has extended to dealing with income tax matters, and that’s a trend which has been both aided and encouraged by the Canada Revenue Agency (CRA).

The CRA’s most notable success in encouraging Canadians into the online tax world has been in relation to the filing of the annual tax return. Motivated, perhaps, by the prospect of quicker processing turnaround and faster receipt of tax refunds, Canadians have taken to online filing of returns in droves. For the latest filing year, 2016, over 24 million individual income tax returns (or 86% of total returns filed) were filed using electronic methods.