Federal Budget offers welcome relief for real estate sector
Of interest to real estate investors, the Minister of Finance delivered draft legislation in the 2018 Federal Budget to implement the passive income proposals.
The Budget proposes to reduce access to the small business tax rate for private corporations based on the amount of passive investment income reported in a given year. The small business limit, that is the reduced rate of tax on the first $500,000 of active income in a corporate group, will be reduced for each dollar of investment income over $50,000 and eliminated when the investment income reaches $150,000 in a fiscal year.
The passive income proposals in this budget may come as welcome relief to companies owning a portfolio of properties where all of the income is taxed as investment income. These companies will not be affected by these proposals since there is no income being taxed at the lower small business tax rate.
Those companies that earn a mix of passive and active income from their real estate projects should revisit their structures with their advisors to determine the extent of the impact and options for moving forward given the passive income rules.