July 21, 2017
Proposed Federal Tax Changes to Professional Corporations
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PROPOSED FEDERAL TAX CHANGES FOR PROFESSIONAL CORPS
Could Increase Taxes for Dentists

BCDA and CDA to activate members in consultation process

The federal Liberals have released a Consultation Paper, Tax Planning Using Private Corporations, in an effort to create tax equity. The paper has been very carefully developed, which means it requires analysis to fully understand the impact for dentists and other incorporated professionals. Consultation is open until October 2, 2017.
Three key issues have been identified

  1. Income sprinkling – extending the current tax on split income rules
    • Close some tax loopholes that allow Canadian Controlled Private Corporations (CCPCs) to pay dividends or other types of income to family members in lower tax brackets, particularly adult children. Introduce a reasonable test to determine the tax rule application.
    • Won’t affect family members receiving a salary, so long as the payment is fair market value for work done.
  2. Holding a passive investment portfolio inside a private corporation
    • Ensure the benefits of the lower active small business tax rate are directed toward investments focused on growing the business, rather than on conferring a personal advantage to the business owner.
    • Current CCPC preferred low tax rate remains unchanged.
    • The proposed changes won’t affect private corporations with no passive investment income.
  3. Surplus stripping: converting a private corporation’s regular income into capital gains
    • Prevent individual shareholders with high incomes from converting corporate surplus that should be taxable as dividends, or salary, into lower-taxed or tax-exempt capital gains, especially using family trusts as a tax planning tool.
    • The proposed measures target non-arm’s length business transactions.

Next steps for BCDA and CDA

  1. Government has released draft legislation to implement these changes after consultation, with the intent to make the legislative changes early in the next Parliamentary session.
  2. All interested parties have until October 2 to comment.
  3. CDA and BCDA are in consultation with accounting experts to determine exactly how the changes would affect the profession.
  4. The paper cites “Canadian Controlled Private Corporations (CCPCs)” and will apply to ALL professional corporations. Just as earlier this year we opposed a proposed tax on extended health benefits, BCDA and CDA will join other professional groups and organizations who oppose the proposed tax on professional corporations.
What can BCDA members do?

  1. Consult your accountant on how the proposed legislative changes may affect your (and your family’s) tax planning.
  2. Stay informed as the consultation process unfolds via updates from your accounting firm, and BCDA through these email ISSUE ALERTS.
  3. Stay tuned for more information on how to participate in our advocacy once we complete our due diligence.
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British Columbia Dental Association
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Vancouver, BC V6J 5C6
604 736 7202 | 1 888 396 9888
bcda@bcdental.org
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