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2. Those who keep money in their corporation on an annual basis rather than drawing it out as employment income or dividends, used to be able to defer taxes for many years until funds were drawn out of the corporation. Now, due to possible tax changes, you may be neutral or even worse off by drawing the income in a year vs. sheltering it in your corporation. Even if things are equal tax wise, you wouldn’t want to hold the funds in your corporation.

3. For those that have large assets in their corporation today, unless the assets are actively used in the “core” business, the assets are considered passive. The tax rates within the corporation on investment income on passive assets will be onerous to the point that you would be equal or better off taking the funds out of the corporation — although maybe not all in one or two years.

4. There is another change that will put an end to those who were using an advanced strategy to effectively draw business income as capital gains income.

The CRA put together a presentation outlining these strategies and what they plan to do. It can be found here.

What are the practical implications of these changes?

The implications are big.

For many business owners, their tax bills will go up meaningfully. Standard income splitting will be limited and income deferrals may no longer make sense.

If you made $500,000 in a year, you may have only taken $100,000 as income personally, maybe you paid $100,000 of dividends (likely with some income splitting), and kept the rest in your corporation.