Small Business Taxes

It is a long standing practice for self employed persons with a small business corporation to “sprinkle” income within that corporation amongst family members. This is normally done by issuing difference classes of the corporation shares to each spouse, particularly where the corporation’s business is the source of family income. The spouse who is not involved in the day to day operations is given a class of shares in recognition of their contribution to the family while the other spouse works within the corporate structure. By setting up a corporation in this manner, the business income can be attributed to either spouse depending on their circumstances at the time of distribution of that income. Normally, this would be accomplished through a declaration of dividends by the corporation on shares held by one spouse or the other.

On March 22, 2017, the Federal Budget indicated that this was a practice which would be examined and which could, in the future, be eliminated. Such tax planning processes are generally considered vital to retirement planning for self employed individuals. If you currently have your small business ownership structured in this manner, we would urge you to pay close attention to deliberations by the Government on this issue in the coming weeks

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