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David Steinberg is an EY Canada partner and tax leader, private client services.

On Oct. 18, two months after introducing the government's initial tax-reform proposals, federal Finance Minister Bill Morneau announced updates to the proposals on passive investments that were designed to increase the tax rates on the perceived abuse of private companies accumulating funds and making passive investments. One thing was missing from Wednesday's announcement – concrete details.

The minister indicated the government is moving forward with measures to limit the deferral benefits of passive investments with private corporations and will release draft legislation as a part of its 2018 budget.

Here are some key points to know about these proposed measures.

Why small businesses use passive investments

Private businesses use passive investments to manage their personal income risk in the event they need to save for life or business changes – such as an economic downturn, unexpected illness, or maternity or parental leave. They allow Canadian businesses to save in times of growth and expansion and help support the overall economy. Some private businesses accumulate passive investments as a way of saving for retirement, because owners, unlike many employees, do not have pension plans.

When will the new measures apply?

The minister confirmed the changes would not be retroactive for existing savings or any passive income earned on those savings.

We'll need to wait for the draft legislation next year to see the details of these grandfathering rules.

New passive income threshold of $50,000

The minister made a tweak to the rules based on feedback from Canadians during the consultation period. He announced a passive income threshold of $50,000 per year for future investments. He indicated this equates to about $1-million of savings.

Wednesday's announcement lacked complete information on how the threshold would be applied, but the minister indicated those details will be released in the 2018 federal budget. No tax increase would apply to investment income that falls below that level.

Mr. Morneau said that "income over the threshold would be taxed in line with someone who takes home a pay cheque every week."

Incentives for venture capital and angel investors

The minister indicated that the government will work with the venture capital and angel investment sectors to identify how it can continue to offer them incentives to support Canadian innovation. Many use their private corporations to make passive investments in startups. Again, the government has been light on details and has not provided guidance on its planned approach to any particular incentives and what its definition of "innovative" business actually means.

Did the "tweak" go far enough?

The $50,000 limitation on the passive income rules is a good start. However, it's been only two weeks since the end of the consultation period, and members of the public, business organizations and professionals made more than 21,000 submissions on all the proposed changes, including many on passive investment. It's difficult to understand how the government could have studied these submissions in such a short period and given them full consideration.

The details of the legislation to be released in the 2018 budget will have to be reviewed to determine if the government has considered all of the potential negative implications.

Finance Minister Bill Morneau is adjusting tax proposals to allow $50,000 of passive income investment to be sheltered annually, meaning only three per cent of privately owned corporations will have to pay higher taxes.

The Canadian Press