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Tech Firms Worried By Canadian Tax Changes

by Mike Godfrey,, Washington

24 August 2017

The Canadian Advanced Technology Alliance (CATA) has described the Government's proposed crackdown on tax planning strategies as "a wholesale attack on small business."

John Reid, CEO of the lobby group, said: "The suggestion is that the current system is 'unfair' insofar as it provides a preference to small business owners vis-à-vis employee taxpayers. That analysis of course makes no provision for the absence of risk by employees, the question of liability for employee wages, all source deductions, benefits, and the fact that the entrepreneur is the last person to get paid and suffers any losses personally."

He said the proposals, published in July, are "a wholesale attack on small business, including high tech start-ups, a sector the Government is supposedly working to boost."

According to Reid, SMEs are "the backbone of Canada's economy." He said that they represent 98 percent of all businesses, about 50 percent of the total workforce, and over 40 percent of Canada's private sector economy.

"As such, the federal Government needs to avoid disincentives to small businesses who are taking calculated risks in developing innovation."

The Government wants to tackle so-called income sprinkling, whereby income is diverted from a high-income individual to family members with lower personal tax rates, or to family members who may not be taxable at all. It also wants to ensure that the tax treatment of passive investments retained in a corporation is fair, and to prevent the surplus income of a private corporation from being converted to a lower-taxed capital gain and stripped from the corporation.

Paul Labarge, CATA Innovation Leadership Council member, added that "to put an end to the longstanding principle that there are some tax rewards for those who take the risks in business is a sad development."

TAGS: tax | investment | small business | business | employees | tax planning | tax rates | Canada | trade association | trade

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