After the outrage by Canadians during the consultation process, the Liberals decided to back down. Instead they have offered to reduce the small business tax rate from 10.5 per cent to 9 per cent by January 1, 2019.
Although the Liberals have retracted their changes to the lifetime capital gains exemption (for now), they intend to still move forward on fixing flaws in the system such as income sprinkling to family members who do not work in the business. The government states it will simplify the proposal by implementing a reasonability test (effective date: January 1, 2018).
The Liberals also commented that the proposal on passive income will only affect 3 per cent of private corporations and will target unfair tax advantages used by the wealthy. Draft legislation to come out in the 2018 budget.
