Feds to stop ‘un­fair in­come sprin­kling’

Wealthy fam­i­lies with pri­vate cor­po­ra­tions tak­ing ad­van­tage of tax loop­hole to spread cash

The Hamilton Spectator - - CANADA & WORLD - ANDY BLATCHFORD

OT­TAWA — The fed­eral gov­ern­ment is propos­ing mea­sures to tighten loop­holes for pri­vate cor­po­ra­tions that it says en­able many Cana­di­ans to “un­fairly” cut down how much tax they pay.

Fi­nance Min­is­ter Bill Morneau un­veiled plans Tues­day de­signed to pre­vent some busi­ness own­ers — par­tic­u­larly wealthy ones — from us­ing le­gal strate­gies to shield part of their in­come in or­der to gain tax ad­van­tages.

Even Morneau him­self, who had a suc­cess­ful busi­ness ca­reer be­fore en­ter­ing pol­i­tics, ad­mit­ted that if the changes are in­tro­duced he will likely pay more taxes go­ing for­ward.

“We see these ap­proaches to man­ag­ing peo­ple’s af­fairs through a pri­vate cor­po­ra­tion as cre­at­ing an un­fair play­ing field,” he said. “I don’t want to see one small sub­set of the pop­u­la­tion ad­van­taged be­cause of our tax code, so it is about cre­at­ing fair­ness . ... All Cana­di­ans should be will­ing to pay that fair share, in­clud­ing my­self.”

The pos­si­ble changes in­clude steps to pre­vent busi­ness own­ers from us­ing pri­vate cor­po­ra­tions to shift their in­come among fam­ily mem­bers sub­ject to lower per­sonal tax rates — even if those rel­a­tives are not in­volved in the busi­ness.

Ot­tawa be­lieves about 50,000 fam­i­lies in Canada do this, a prac­tice the gov­ern­ment calls “in­come sprin­kling.”

To help ad­dress it, the gov­ern­ment is propos­ing mea­sures such as stricter age-re­lated re­quire­ments for fam­ily mem­bers and tests to en­sure their con­tri­bu­tions to the busi­ness are “rea­son­able.” Do­ing so would pro­vide an es­ti­mated $250 mil­lion per year in ad­di­tional fed­eral rev­enue, or about $5,000 per fam­ily.

Ot­tawa also re­leased pro­posed changes to tar­get those who gain tax re­lief through pas­sive in­vest­ment in­come that en­ables cor­po­rate own­ers and em­ploy­ees to make one-time in­vest­ments from $100,000 of pre-tax in­come and re­tain them for 10 years.

And the gov­ern­ment is call­ing for the elim­i­na­tion of the tax-de­fer­ral ad­van­tage on pas­sive in­come earned by pri­vate cor­po­ra­tions. It is also look­ing to ad­dress a tax-plan­ning ap­proach that con­verts in­come into cap­i­tal gains, which are taxed at a lower rate.

There will be a 75-day pub­lic con­sul­ta­tion pe­riod to al­low stake­hold­ers to ex­am­ine and weigh in on the three sets of pro­pos­als an­nounced.

The gov­ern­ment be­lieves the use of pri­vate cor­po­ra­tions to lower tax rates is an in­creas­ing trend in Canada and has been ex­ac­er­bated by the shift to­ward more of a ser­vices-based econ­omy.

The num­ber of Cana­dian-con­trolled pri­vate cor­po­ra­tions grew from 1.2 mil­lion in 2001 to 1.8 mil­lion in 2014, the Fi­nance Depart­ment said.

From 2000 to 2016, the depart­ment said the pro­por­tion of in­cor­po­rated, self-em­ployed in­di­vid­u­als al­most dou­bled.

While these tax-sav­ings prac­tices are le­gal, Morneau said they are un­fair.


Fi­nance Min­is­ter Bill Morneau ad­mits he will be af­fected by a pro­posed new law that will pre­vent the rich from shield­ing in­comes to gain tax ad­van­tages.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.