We are pleased to provide an update with regard to the proposed tax changes. First of all, we would like to acknowledge and thank the Federal government for taking the time to review the 21,000 submissions received in response to the proposed tax changes. At UFA we are proud to be part of the conversation on behalf of our members and customers. We appreciate that the government has taken the time to carefully consider the feedback we, and so many others, offered and that they have not only opened the door for discussion but have also initiated revisions to the existing proposal.
Here is a summary of the recent announcements made this past October; however, the ultimate position of the government will not be fully known until the revised draft legislative proposals are released later this fall and/or 2018 Federal budget.
- The government announced that it will not proceed with the proposals that address the multiplication of the lifetime capital gains deduction (LCGD).
- The Government will not be moving forward with measures relating to the conversion of income into capital gains. The related proposed changes to capital dividend account payments will also presumably be abandoned as a result of this announcement.
- The government stated that "it intends to move forward with measures to limit income sprinkling using private corporations, while ensuring that the rules will not impact businesses to the extent there are clear and meaningful contributions by spouses, children and other family members". Adults will be required to demonstrate their contribution to the business based on four basic principles:
- Labour contributions
- Capital or equity contributions
- Taking on financial risks of the business, such as co-signing a loan or other debt, and/or
- Past contributions in respect to previous labour, capital or risks
A primary concern with this tax proposal is the compliance burden to prove/demonstrate such contributions. Until legislation is released, we cannot ascertain the extent of such compliance burden.
- Finance Minister Morneau stated that the government will proceed with the previously announced proposals regarding increased taxation of investment income, except that the new measures will not apply to a $50,000 annual threshold on passive income (approximately 1 million in investments based on nominal rate of return of 5 per cent). He also confirmed that the measures targeting passive income will not apply to past investments and the income earned from those investments. Further, the government has commented that incentives will be in place so that venture capital and angel investors can continue to invest. Draft legislation with respect to this revised tax rule is expected to be part of the 2018 Federal budget.
We are hopeful that policy makers are putting forth the effort to listen to diverse voices, taking the time to meet with us to understand our members' pre-occupations and ultimately to come up with a solution that meets the Minister's goals while addressing the unintended consequences for the agricultural industry.
In the meantime, we will continue to advocate on behalf of agriculture producers in the province and ensure that our members' voices are represented to the best of our ability.
For more information about how the tax announcements specifically impact agricultural producers and may affect you, please visit www.fin.gc.ca.
UFA Government Relations