Minister Morneau's announcement regarding the tax treatment of passive investments for small businesses indicates that he is once again listening to our collective concerns. The government is following through on our recommendation to allow for a limited amount of passive investments to be used to business cycle fluctuations, future expansion, family planning, retirement planning and an emergency account.
We are pleased to see the government clearly states that all past investments and the income earned from those investments will be protected. The government will release draft legislation as part of Budget 2018 and any proposals will apply on a go-forward basis. For more detailed background information, click here.
Minister Morneau has listened to the concerns we brought forward and our approach of constructive dialogue is demonstrating results for our members. We will be continuing to work with the Minister and his office as these proposals are finalized to ensure our membership is not unduly impacted.
The government will make adjustments to their passive investment proposal in order to:
- Ensure that investments already made by private corporations’ owners, including the future income earned from such investments, are protected. The measures will only apply on a go-forward basis;
- Protect the ability of businesses to save funds needed for contingencies or future investments, such as the purchase of equipment, hiring and training of staff or business expansion;
- Include a passive income threshold of $50,000 per year for future, go-forward investments (equivalent to $1 million in savings based on a nominal 5 per cent rate of return) to provide more flexibility for business owners to hold savings for multiple purposes, including savings that can later be used for personal benefits such as sick leave, parental leave, or retirement. There will be no tax increase on investment income below this threshold; and
- Ensure that as the government moves forward with tax changes, incentives are maintained so that Canada’s venture capital and angel investors can continue to invest in the next generation of Canadian innovation, working with both sectors to identify how this can be best achieved.
We will continue to keep you apprised of ongoing developments.