The federal government is moving ahead to limit the tax advantages of holding passive investments within private corporations, but is taking a much simpler and far more limited approach than it had originally proposed back in July 2017.
In the Feb. 27 budget, Finance Minister Bill Morneau confirmed that the government has scrapped its earlier proposal to directly increase the taxes payable on passive investment income earned within a private corporation. Passive investments are assets held by the corporation, such as stocks, bonds and investment funds, that generate non-business income.
Instead, the government will limit the ability of businesses with significant passive investments to benefit from the preferential small-business rate. This rate varies by province but is generally around 15%. Currently, up to $500,000 of active business income is subject to the lower small-business tax rate. By comparison, the general tax rate for businesses is about 25%, or 10 percentage points higher.
