Prior to the 2016 federal budget there was a perceived abuse that certain corporate groups were benefiting from a multiplication of the small business deduction. To curb this behavior the budget introduced certain measures that aim to, amongst other things, prohibit a corporation from claiming the small business deduction on income received from certain private corporations.
If your corporation has:
- received income from providing services or property directly or indirectly to another private corporation, and
- at any time in a taxation year, your corporation, one of its shareholders, or a person that does not deal at arm’s length with the shareholders, has an interest in the private corporation that receives your products or services,
then that income may not qualify for the deduction.
To ensure that your corporation is compliant with its income tax reporting obligations, we suggest reviewing your corporation’s sources of revenue to determine what amount of income, if any, may be caught by these new rules. Given the personal nature of the information required to make such a determination (i.e. certain non-arm’s length relationships with shareholders), it will be incumbent upon you, and all shareholders of your corporation, to identify and bring such information to your HGA representative’s attention for a closer examination.