This note continues Tax Principal Raffaele Ruberto’s ten-week Friday Tax Tip series, helping business owners and their family members mitigate the new Tax on Split Income (“TOSI”) and upcoming Tax on Passive Income (“TOPI”) rules.
As always, if there are any topics you would like addressed, or have specific questions you need answered, just send an email to rruberto@sbpartners.ca
Tax on Split Income | Tip 4
From 2018 onward, the shares of a private corporation held by certain family members must be of a Qualified Small Business Corporation (“QSBC”) at the time of disposition for such shareholders to utilize their Lifetime Capital Gain Exemption (“LCGE”) and not be subject to TOSI.
To meet the QSBC shares definition, they must generally be held for a period of 2 years, and the corporation must maintain a certain ratio qualifying assets to non-qualifying assets for two years and at the time of sale.
Ownership can still be structured to allow family members to participate in the growth of the company and utilize their available LCGE to shelter up to $848,252 for 2018 ($866,912 for 2019) of the capital gain resulting from the disposition of such shares.
However, in certain situations, the TOSI rules will reclassify the capital gain from the dispositions of non-QSBC shares to taxable dividend. Family members receiving such reclassified dividend will be deemed to have actually received TOSI income and as such be taxed at highest tax rate of 53.53% (for Ontario residents).
With careful planning, you can still leverage your LCGE and achieve up to $227,000 tax savings per family member.
Please contact SB Partners to learn more, or to discuss any of our signature TOSI Solutions.
Tax on Passive Income | Tip 4
You can structure the payment of certain dividends to reduce the amount of investment income subject to TOPI, and minimize the tax implications for family members.
This strategy also preserves the corporation’s small business deduction.
Please contact SB Partners to learn more, or to discuss a variety of our signature TOPI Solutions.
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