What new ‘income sprinkling’ rules mean for tax planning

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Hand writing Tax Planning word on the accountant desk

By Jamie Golombek

Small business owners, including incorporated professionals such as doctors, lawyers, accountants, and others, will likely face a higher tax bill in the years ahead as a result of Finance Minister Bill Morneau’s announcement this week targeting several common, and until now, perfectly legal, tax strategies used in conjunction with private corporations.

The strategies under attack can be categorized into three main areas: income sprinkling, earning passive investment income in a corporation and converting a corporation’s ordinary income into tax-preferred capital gains.

Among these changes, it’s the first one — income sprinkling — which is perhaps deemed the most offensive of the three and the one that will likely have the broadest financial impact on small business owners and incorporated professionals.

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