Canada: The Canadian Private Corporation Tax Proposals – Part Deux

Last Updated: December 13 2017
Article by Kim G.C. Moody

The media frenzy and uproar over the July 18, 2017 tax proposals that had been routine throughout the summer and early fall has quieted down significantly ever since Minister Morneau's "Santa Claus" week of announcements in October (we have previously written about these announcements). Does this mean that the tax and business community are satisfied with the announcements and agreed with the government that it has "listened" to the concerns? Hardly. The simple fact is that we are patiently waiting for more information to be released. There is a limit to the number of times people like me can write biting arguments that the bulk of the private corporation tax proposals should be dropped without the audience being fatigued. Accordingly, the community is waiting for something substantive to comment on.

Having said the above, it's been interesting to read and listen to some of the comments from the current government since Santa Claus week. Some of the comments are paraphrased below:

  1. Letters from Liberal MPs – I've read a number of letters from Liberal MPs to certain constituents that effectively state, "we listened and we got it right." Such statements by Liberal MPs show a complete lack of understanding of the complexity and pervasiveness of the private corporation tax proposals. It also shows that they do not understand the process that we are currently experiencing. We are currently awaiting "V2" of the "income sprinkling" draft legislation that was promised during Santa Claus week—more on that below. In addition, we await more details about the passive investment proposals that the government committed to and for which further details won't be released until the 2018 federal budget. Again, to say that "we got it right" displays a complete lack of empathy for the process and overall uncertainty that the tax and business community is currently experiencing. Uncertainty is never a good feature to have when trying to start and run businesses. Canada, overall, suffers.
  2. The 73% tax figure is apparently "phony" – there have been a number of Liberal MPs that continue to state that the 73% tax rate that has been often discussed (slight variation depending on which province you are a resident of) is "phony." Such a tax rate is a flow-through result that will ultimately be payable by Canadian-controlled private corporations ("CCPCs") and their shareholders—combined—if they are subject to the new taxation regime for passive income realized by such CCPCs. Such a result is real, and, in my opinion, completely unfair. To suggest the tax result is phony again displays a complete lack of understanding of the private corporation tax proposals.
  3. The private corporation proposals will only affect 2.5% of CCPCs – this statement has been trumpeted by various supporters of the passive investment proposals and discussed by the Parliamentary Budget Officer's analysis (we wrote about the PBO's analysis here). I have real difficulty with this statement. Would it be palatable to state: "The disability tax credit is only available to 3% of the population who is disabled, therefore we're going to get rid of it." Of course not. That would be a ludicrous statement assuming that having the disability tax credit in our tax system is good tax policy to begin with. Accordingly, to support a flawed tax policy—the passive investment tax proposals—by stating that only a small number of taxpayers will be affected is ludicrous. The proper analysis should be: a) is this good tax policy?; b) who will be affected?; c) will there be behavioural responses from the affected parties? If so, what will the impact of the behavioural responses be?
  4. We reduced the tax rate for CCPCs! – the bragging about the reduction of the tax rate is frustrating for a number of reasons. First, tax rates were never part of the discussion about the July 18, 2017 tax proposals. It is obvious that the tax rate reductions were used as a distractor and sweetener to try to quell the storm. Such reductions compound some of the issues that appear to have been the impetus behind the July 18, 2017 proposals. Further, because of Canada's integrated tax system, a tax reduction for CCPCs on the first $500K of active business income earned in Canada will be accompanied by an increase in the non-eligible dividend rate. This represents a very real tax increase to all of the retained earnings of a private corporation earned prior to the tax rate change—so tough luck for any CCPCs that have not paid out all historical earnings prior to the end of 2017. Such an increase was announced—via a footnote—but the Liberal MPs seem to conveniently forget that fact when they triumphantly announce tax rate reductions.

Finally, as I write this, the government has still not released V2 of the "income sprinkling" draft legislation that they intend to become effective January 1, 2018. When the government announced during Santa Claus week that they intended to release V2 "later this fall," I was cynical and told some of my colleagues that they would release it very close to December 21, 2017. I was not serious and was optimistic that V2 would be released with plenty of time to enable the tax and business community to absorb such changes so as to enable affected parties the limited ability to plan their affairs before January 1, 2018. It appears that my cynicism was not unfounded and that we are living in déjà vu land. As a reminder, the private corporation tax proposals were released under a flurry of rhetoric when a significant chunk of the business community was trying to slow down for summer. Now, V2 appears ready to be released during a similar period immediately before the Christmas holidays that will leave affected parties very little, if any, time to plan. Merry Christmas.

In 1993, the sequel to the 1991 movie of Hot Shots was released under the title of Hot Shots – Part Deux. Such a release contributed to the urban dictionary definition of "Part Deux" being "a superficial, unnecessary, or overly bad sequel to a classic film." Well, the July 18, 2017 "income sprinkling" and other private corporation tax proposals were certainly classic something. Let's hope Part Deux is not a superficial, unnecessary or overly bad sequel to the classic. Canada deserves a much better process to introduce tax reform so as to reduce the uncertainty that we have lived with for far too long.

Moodys Gartner Tax Law is only about tax. It is not an add-on service, it is our singular focus. Our Canadian and US lawyers and Chartered Accountants work together to develop effective tax strategies that get results, for individuals and corporate clients with interests in Canada, the US or both. Our strengths lie in Canadian and US cross-border tax advisory services, estateplanning, and tax litigation/dispute resolution. We identify areas of risk and opportunity, and create plans that yield the right balance of protection, optimization and compliance for each of our clients' special circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Kim G.C. Moody
Events from this Firm
27 Oct 2018, Seminar, London, UK

On Dec. 22, 2017, President Trump signed into law the biggest US tax reform bill in 31 years, changing the lives of Americans at home and abroad.

1 Nov 2018, Seminar, Doha, Qatar

On Dec. 22, 2017, President Trump signed into law the biggest US tax reform bill in 31 years, changing the lives of Americans at home and abroad. Many US residents will see an immediate benefit on their 2018 tax return, but for US expats and green card holders living abroad, things may have changed for the worse.

3 Nov 2018, Seminar, Dubai, United Arab Emirates

On Dec. 22, 2017, President Trump signed into law the biggest US tax reform bill in 31 years, changing the lives of Americans at home and abroad. Many US residents will see an immediate benefit on their 2018 tax return, but for US expats and green card holders living abroad, things may have changed for the worse.

Similar Articles
Relevancy Powered by MondaqAI
Davies Ward Phillips & Vineberg
Collins Barrow National Incorporated
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Davies Ward Phillips & Vineberg
Collins Barrow National Incorporated
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions