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Under the current system, a CCPC pays immediate tax of 50 per cent on any income it makes from investments in its portfolio. As a result of our system’s “tax integration” principle, there is little further net personal-corporate tax added when that CCPC then pays dividends to an owner in the top personal tax bracket. However, under the proposal, a CCPC would still pay 50 per cent immediate tax, but the corporate tax would now be non-refundable, and individuals at the top rate would pay a combined personal-corporate tax rate of about 73 per cent on a CCPC’s investment income. No wonder people were angry.

This certainly did not go as planned

The recent “tweak” now states that existing rules will continue to apply to annual passive income of up to $50,000 — equivalent to a return of five per cent on $1 million of savings. Income from existing savings would be grandfathered under the old rules. As a result, immediate tax of 50 per cent would continue to apply on the “exempted” portion of a CCPC’s passive income, but without the confiscatory rate of 73 per cent when distributed. So this is wonderful news, right? Not so much.

A CCPC can accumulate savings of up to $1 million for future business expansion, for investments in new businesses, to weather business downturns and for retirement. This limit may well be sufficient for a professional corporation or a small business with no expansion plans. However, it is woefully inadequate for a large and growing business.

On retirement, an amount of $1 million will provide an owner with an annual annuity of between $34,000 and $54,000. That’s hardly the territory of the one-percent club. And what about the largest and most profitable CCPCs — the ones that punch well above their weight in terms of job creation and economic growth? Doesn’t matter. It’s a hard $50,000 cap for everyone — not a percentage of assets or revenue or earnings. And so a CCPC with annual revenue of $100 million that accumulates $10 million for future business expansion and acquisitions will face a combined rate of close to 73 per cent. It should come as no surprise that investment capital is starting to flee the country.