The 2018 federal budget signifies another chapter in the Department of Finance's saga to overhaul the taxation of private corporations and their shareholders. Budget 2018 sets out two changes to the taxation of private corporations: a reduction of the small business deduction based on the amount of passive investment income earned at a corporate level and a restriction on obtaining refunds of corporate tax on dividends paid from income taxed at the reduced small business rate.
The Federal Court of Appeal recently overturned a Tax Court decision which had found that a number of transactions undertaken by the Univar corporate group constituted abusive tax avoidance under the General Anti-avoidance Rule (GAAR). The judgment contains several important points concerning the analysis and application of the GAAR and will undoubtedly be relied on by taxpayers in future.
The Department of Finance recently released its consultation policy paper on the taxation of private corporations first announced in Budget 2017, along with proposed legislation on some of the topics addressed. The most dramatic proposals seek to equate the tax treatment of self-employed incorporated business owners with that of individual salaried employees without acknowledgement of their fundamental non-tax differences, including the inherent risk in starting and operating a small business.
Rectification has been a popular topic in tax law since last year's Supreme Court decisions limiting its availability for tax planning errors. In a brief judgment, the Federal Court of Appeal disagreed with the Tax Court and held that foreign rectification orders are not necessarily dispositive or binding on a tax assessment, but must be taken as facts at trial even in the absence of domestic recognition through homologation.