Feds provide more details on revisions to controversial tax proposals
The federal government released more details Wednesday on changes to its controversial tax proposals in hopes of further addressing deep concerns over reforms that have angered the small-business community.
The Liberals are tweaking a proposal that, as of Jan. 1, would tighten existing rules enabling small-business owners to lower their tax burden by distributing earnings among family members who do not make significant contributions to their companies — a practice known as income sprinkling.
The changes are among several adjustments the government made to its overall tax-reform package following an onslaught of complaints from doctors, lawyers, accountants, tax experts, farmers, premiers and even some Liberal backbenchers. Critics have denounced the proposals, contending they would hurt the very middle class the Trudeau government claimed to be trying to help. Earlier Wednesday, the Senate finance committee urged the government to abandon its controversial tax proposals — or at the very least delay their implementation for one year, until 2019.
The committee — five Conservatives, five independents and two Independent Liberals — made the demand after studying the potential impacts of the entire package of proposals. Two senators on the committee, both of whom were appointed by Prime Minister Justin Trudeau, declined to support the call for the whole taxplan to be withdrawn. The government insisted that Wednesday’s revisions, this time to the income-sprinkling rules, contain clear tests to determine whether a relative has made a meaningful contribution to — or investment in — the family business.
The Finance Department said businesses will have until Dec. 31, 2018, to adjust to the changes, which include new qualification rules for family members — such as substantial capital investments as well as minimums for age and the number of hours worked. On Wednesday, Trudeau said the modified income-sprinkling proposal would only have an impact on three per cent of all small businesses in Canada — and even those affected would still be able to continue sprinkling their income, as long as it’s for legitimate reasons. The Liberals vowed to simplify the income-sprinkling proposal amid concerns about the added complexity of trying to prove the involvement of family members. The government says family members who make meaningful contributions to a company will not be affected by the updated rules. Here are some examples of those who would be exempt:
— A business owner’s spouse, as long as the owner meaningfully contributed to the company and is aged 65 and older.
— Adults aged 18 and older who have made labour contributions of at least 20 hours per week or about 1,000 hours per year.
— Adults aged 25 and older who own at least 10 per cent of a company that earns less that 90 per cent of its income from providing services and is not a professional corporation.
Initially, the government expected the change to bring in another $250 million per year to federal coffers, but that’s been revised to $220 million per year by 2022-23.