On February 27, 2018, the federal government released its annual budget. This year, unlike last year, there are not many elements that will affect the majority of our clients, with the exception of the government’s much-awaited final passive investment proposal and the new proposed rules for recovering refundable taxes on investment income.

What you need to know: 

The government has completely changed its tune from its July 18, 2017 proposal on how passive investment income for Canadian-controlled private corporations would be taxed. Punitive tax rates have been completely eliminated with the integration principle maintained. The government now proposes to further restrict access to the small business deduction if the passive income of the corporation exceeds $50,000. This concept is consistent with some measures already in place, like the large corporations tax, and more palatable than the very punitive measures that were originally proposed.

Other notable inclusions in this year’s budget include new trust reporting requirements that will require disclosure of trustees, beneficiaries, settlers and protectors that will come into effect in 2021. The government also included transitional rules for Health and Wellness Trusts as they transition to Employee Life and Health Trusts; amendments to Reassessment Rules to extend the normal reassessment period in certain cases; and finally, starting in 2018, changes to the filing deadline for T1134s (Reporting Requirements for a Taxpayer’s Foreign Affiliate) from the current 15 months after the end of the taxation year to six months after the taxation year.

Notable omissions included a lack of response to counteract competitive risk from US Tax Reforms.

To access our full budget commentary, please click here.