Joint Committee points out draconian effects of the new SBD rules

The definition of “specified corporate income” in the new small business deduction rules references the concept of a Canadian-controlled private corporation providing services or property to a private corporation in which any person, who does not deal at arm’s length with a shareholder of the CCPC, has “a direct or indirect interest.” This concept is quite ambiguous. For example, Mr. Smith has units in the iShares Dow Jones Fund, which holds Ford Motors which, in turn, holds Ford Canada. This may indicate that an auto parts manufacturer of which he is a shareholder loses the SBD on its income from Ford Canada.

The tainting effect of there being “any” related shareholder of the private company purchaser also can be harsh. For example, a small contractor could lose SBD access on income from a significant contract with a large private corporation having a very small employee-shareholder who was related.

Neal Armstrong. Summary of 2 June 2017 Joint Committee Submission to Finance respecting the Small Business Deduction, appending Submission to Randy Hewlett of the Income Tax Rulings Directorate dated 14 February 2017, under s. 125(1) – specified corporate income – (a)(i), specified partnership income – (c).