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Canada 'Listening To Concerns' Over Tax Reform Proposals

by Mike Godfrey, Tax-News.com, Washington

09 October 2017


The Canadian Government has said that it will "act on what it has heard" during its 75-day consultation on the controversial reform of tax planning rules it says are being used by high-income individuals to lower their tax bills.

The Government intends to prevent individuals from using private corporations in ways that allow them to reduce their personal taxes. It proposed a crackdown on "income sprinkling" among family members, the retention of passive investments in private corporations, and the conversion of the surplus income of private corporations to lower-taxed capital gains. A consultation on the proposals closed on October 2.

Marking the close of the consultation period, the Government said that it is "committed to fixing a system where wealthy and high-income individuals are encouraged to use their private corporations to pay lower tax rates than middle-class Canadians." However, it stressed that it has listened to small business owners, professionals, and experts, and "will act on what it has heard."

The Government said that the views expressed are being carefully considered. A detailed review of the submissions received is now being undertaken.

The Government also said that it will base its next steps on five key principles. They are: supporting small businesses; keeping taxes low for small businesses; avoiding the creation of unnecessary red tape for small businesses; recognizing the importance of maintaining family farms; and conducting a gender-based analysis on the finalized programs, to ensure any changes to the tax system promote gender equity.

Finance Minister Bill Morneau emphasized that small business owners are not the focus of the changes.

He explained: "An incorporated professional making hundreds of thousands of dollars a year who takes advantage of the current rules could end up paying a lower tax rate than a middle-class employee on salary. We are going to fix this, while taking into account the feedback received during these consultations."

"In particular, we will act on wat we've heard from small business owners and hard-working middle-class farmers and fishers. You are not the focus of our changes to strengthen the fairness of Canada's tax system."

"Rather, the focus of these changes is a small number of wealthy incorporated individuals."

Responding to the consultation's closure, Dan Kelly, President of the Canadian Federation of Independent Business, said: "Over the past 75 days, Canada has witnessed something very rare – a spontaneous, grassroots response from small business owners, a group typically way too busy to mount protests and campaigns about government policy."

Kelly added that the proposed reforms have "caused a firestorm of reaction from small business owners, which appears to have genuinely surprised our political leaders." He called on the Government to reflect on the proposals and on the strategy it used to launch them, arguing that although "small businesses owners are angry, it is not too late for government to chart a new course."

TAGS: individuals | compliance | tax | investment | small business | business | tax compliance | small and medium-sized enterprises (SME) | professionals | tax planning | tax rates | Canada | tax breaks | tax reform | trade association | trade

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