Holding a passive investment portfolio inside a private corporation
The current system allows for a tax deferral of the individual tax payable if the shareholder leaves funds in the corporation for passive investment purposes instead of being distributed to the shareholders, through taxable dividends or salary, for the shareholders to invest personally.
Converting a private corporationâ€™s income into capital gains
Anti-surplus stripping rules
Changes are proposed to prevent individual taxpayers from using non-armâ€™s-length transactions that increase the cost base of shares of a corporation and avoid the application of Section 84.1. Section 84.1 is intended to prevent corporate surplus from being removed at the lower capital gains tax rates instead of the higher dividend tax rates where an individual sells shares of the corporation to a non-armâ€™s- length corporation.
The government is proposing a review of tax planning strategies in three areas:
- Income sprinkling using private corporations
- Converting a private corporationâ€™s income into capital gains
- Holding a passive investment portfolio inside a private corporation