As a business owner, you’ve probably heard about the Trudeau government making moves to tax businesses on what it perceives as loopholes it says are designed to give a growing number of wealthy, small-business owners an unfair tax advantage over other Canadians.
It’s a three part scenario.
Under current rules incorporated professionals can ‘sprinkle’ income to family members who are at a lower personal tax rate in order to pay less tax. These family members may or may not actually work for the company. The feds plan to crack down on this practice.
The second is Finance Canada will also target individuals who claim regular business income as capital gains as opposed to extracting funds from their businesses as a dividend. Long story short...dividends are taxed at a higher rate.
Thirdly, the Finance Minister proposes taxing money that businesses have ‘parked’ for future reinvestment in the business. Businesses can use this money for things like infrastructure or even invest in stocks. This is called passive income and money earned on it involves lower corporate tax rates. The lower tax rates are designed to encourage business growth, but it’s being argued by the government that business owners are using these accounts to simply save money and ultimately pay less tax.
The government cites 250 million in lost tax revenue due to the current regulations.
But are all these proposed changes a good idea?
They certainly can be seen as political in nature when coming from a Liberal government, I claim fair comment. The idea is to create a level playing field in the business community and earn more tax revenue for the general public which helps the middle class. BBB does not take a stand on this but simply asks the question is it good or bad for average Canadians and the economy as a whole? The outcry from businesses across the nation has been loud indeed. Representatives from many different industries, including tax professionals, have come forward to speak against the changes.
Many businesses feel the move will discourage business growth and wrongly accuses entrepreneurs of hiding money to pay less tax. In an open letter to the Prime Minister, Dr. Deepa Soni believes the new rules will destroy what she calls “Canada’s Economic Engine.” Read her letter here.
However, some experts welcome the changes.
As a business owner, what do you think?