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SMEs Urge Canada To Go Slow On Tax Reform

by Mike Godfrey,, Washington

20 February 2018

New Canadian rules on income sprinkling are barely understood and SMEs are concerned at the prospect of a crackdown on passive investments, according to the president of the Canadian Federation of Independent Business (CFIB).

Finance Minister Bill Morneau announced this week that he will table his 2018 Budget on 27 February. In response to the announcement, the Coalition for Small Business Tax Fairness, a group of 75 organizations of which the CFIB is a member, wrote to Morneau to urge that the Budget be used to provide greater certainty to small businesses on the Government's latest tax changes.

Last year, the Government proposed a package of reforms targeted at three aspects of the tax planning rules.

Following a backlash from small business owners in particular, the Government announced that it would drop plans to prevent the conversion of a private corporation's regular income into capital gains. It did nevertheless press ahead with plans to restrict income sprinkling by private corporations, albeit in modified form. It also confirmed that it would include in Budget 2018 detailed proposals for limiting the tax benefits of investing passively in private corporations.

CFIB President Dan Kelly said: "While the small business community recognizes that the Government made some improvements to its tax proposals last fall, the confusion and worry remain very high. Virtually no business owner understands the new income sprinkling rules that are now in place and, at the same time, the business community is bracing for passive investment changes expected in the upcoming Budget."

The Coalition has called on the Government to immediately undertake an economic impact assessment of the proposed changes and delay implementation until the assessment is complete. It urged the Government to postpone the application of the new income splitting regime until at least January 1, 2019, and to exempt spousal income and dividends from the rules.

The Coalition also recommended that the passive investment reforms be dropped and that the Government conduct a comprehensive review of Canada's income tax system.

TAGS: compliance | tax | investment | small business | business | tax compliance | tax incentives | corporation tax | tax thresholds | ministry of finance | small and medium-sized enterprises (SME) | tax planning | tax rates | Canada | dividends | tax reform | trade association | trade

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