267 replies to this topic

[Mike K.]

Trudeau's proposed changes to Canada's tax regime as they pertain to private corporations (i.e. small businesses), I feel, are a grab at revenues from a segment of the population that the Liberals believe is not powerful enough to affect election outcomes.

Calling small business owners tax evaders or individuals operating on a different plain than other Canadians, is not only shameful, but it's downright derogatory when the so-called evaders are utilizing tax laws as created by a government that suddenly considers them to be "unfair."

What the changes will translate to is an erosion of safety nets for small businesses, the erosion of investment capital a business has at the ready to expand, hire more employees, or weather a downturn. And they will also make operating a small business an even riskier undertaking.

Remember, this is the government that cut the Tax Free Savings Accounts by half, calling tax-free investment of already taxed monies ...unfair(?!). Now they want to tell small business owners, as the below G&M article segment posits, that a business putting away capital to sustain its future operations is ...offensive.

Of the three changes, the one pasted below is the one that will be a hard pill to swallow for business owners. The second, income sprinkling, (allowing a spouse in a lower tax bracket to share some of a spouse's earnings as far as taxes are concerned) will affect a lot of people (like doctors) who rely on stay-at-home spouses. The third change, related to capital gains, I don't understand enough as its more complex, but revamping the capital gains regulations under the guise the changes will simplify the situation is pretty dodgy when we know full well the changes will further befuddle Canadians.

Passive income - https://beta.theglob...obeandmail.com

When a corporation generates income, it's eligible for a pretty attractive rate of tax (about 15 per cent, but it varies by province) on the first $500,000 (federally) of active business income. If a business owner doesn't need all of his earnings to support his lifestyle, it's common to leave the rest in the corporation to invest – perhaps in a portfolio earning passive income. For example, if you earn $100 in active business income and pay $15 of that to the taxman, you'd have $85 left to invest in the corporation. If you had earned that business income personally, and you're in the highest tax bracket (a marginal tax rate of about 50 per cent), you'd be left with just $50 to invest. So, there's an advantage to earning business income in a corporation if you earn enough that you won't spend it all.

The government thinks this is unfair, notwithstanding that you'll actually pay more tax over all if you invest inside the corporation and then eventually pay that income out to yourself as dividends later. That's right, corporate tax rates on passive income are high even under today's rules – don't let the government tell you otherwise. So, the only meaningful benefit is the larger amount to invest up front as noted in my example above. It appears that the government believes that having more money working for you today, if you have a corporation, is offensive (so much for helping Canadians save for the future).

The government is exploring how to limit the perceived benefit of leaving excess earnings inside a corporation to grow in a passive portfolio. Mr. Morneau is looking for comments from Canadians on a couple of primary options: (1) implementing a refundable tax that would apply to ineligible investments (the tax would be refunded once the capital is either paid out to you as taxable dividends personally, or is used in the active business), or (2) change the current refundable tax system on annual passive income so that the tax is no longer refundable if the investments were made with excess business income taxed at low rates. How does all of this simplify our tax system?

[VicHockeyFan]

Income sprinkling has always been a BS move.  "Prentending" to pay someone in the family for "work" that is not really performed.

 

I'm fine with that ending.

[Matt R.]

In the example above, couldn't the doctor and his wife be shareholders of the corporation and pay themselves equal amounts of T5 dividends thus reducing their personal tax burden?

Matt.

[Mike K.]

Income sprinkling has always been a BS move.  "Prentending" to pay someone in the family for "work" that is not really performed.

 

I'm fine with that ending.

 

"Pretending" is a violation. Are you saying everyone who hires a spouse to perform a duty related to their business affairs is pretending that they carry out the work?

[Mike K.]

In the example above, couldn't the doctor and his wife be shareholders of the corporation and pay themselves equal amounts of T5 dividends thus reducing their personal tax burden?

Matt.

 

Perhaps that's fine for some, but what happens in the event of a divorce? Or in the event the spouse contests a decision and an impasse is reached?

 

I'd wager most people don't go down that route because that's simply too onerous and could have serious unintended ramifications.

[VicHockeyFan]

"Pretending" is a violation. Are you saying everyone who hires a spouse to perform a duty related to their business affairs is pretending that they carry out the work?

 

I'm saying many are, and they are making family members a party to tax evasion.

Edited by VicHockeyFan, 09 September 2017 - 09:07 AM.

[sdwright.vic]

"Pretending" is a violation. Are you saying everyone who hires a spouse to perform a duty related to their business affairs is pretending that they carry out the work?

Two thrives of the same mind in quite a few cases in my experience.

[Matt R.]

Perhaps that's fine for some, but what happens in the event of a divorce? Or in the event the spouse contests a decision and an impasse is reached?


I'd wager most people don't go down that route because that's simply too onerous and could have serious unintended ramifications.

In my experience this sort of "income splitting" is very common amongst small business owners.

What are the serious unintended ramifications?

Matt.

[tjv]

but how does the government officially tell between pretending to work for the corporation and actually.  Lets say I have a corporation and I want to pay my wife oh to say clean the office.  I pay her $75/hr x 8 hrs/week x 52 weeks = 31k year.  If the government says that $75 an hour in unfair, then they open the door to everything.  Now I think the $600/hr my lawyer charges me is unfair and the government should regulate that a lawyer can only charge $200/hr.  Gas station attendant $13.50/hr, etc, etc for every profession in this country

 

I am more and more of the opinion we have a pretend Prime Minister

[Mike K.]

What the government should be doing is ensuring Canadians are in compliance, not changing laws after telling Canadians the original changes were to their benefit. And they sure were. So now claw them back? Lame.

[Mike K.]

In my experience this sort of "income splitting" is very common amongst small business owners.

What are the serious unintended ramifications?

Matt.

If you're audited you better hope the services your family is providing hold up. So paying your son $50/hour to do what the market dictates is worth $20/hour will not end well if the tax man comes around.

[jonny]

It will never happen, but what the government should be doing is eliminating tax favouritism, corporate welfare and subsidies in the form of tax credits. All we are doing is moving money around and creating economic distortion.

The tax system should be simple. Three or so personal tax rates. Minimal credits (I'd keep maybe only the charitable donation credit). One corporate income tax rate.

[Mike K.]

YES!

[tjv]

If you're audited you better hope the services your family is providing hold up. So paying your son $50/hour to do what the market dictates is worth $20/hour will not end well if the tax man comes around.

As per my earlier post, how can the government start dictating what a service is worth.  That opens a massive ugly can of worms and millions of lawsuits.

 

An example, I had one painter want $75/hr to do some painting for me, but another want $25.  Some lawyers charge well over $600 and some are $200.  Say this son was cleaning for $50/hr, you can't tell me there are professional cleaning companies that charge that

[Mike K.]

I'm sure there are companies charging more than that, but I guess the point is if your situation doesn't pass the sniff test don't expect Revenue Canada to just smile and walk away.

Anyone who's been audited will tell you the process can be extremely stressful and the agents will turn over every stone if they suspect something is amiss.

[DavidSchell]

In the example above, couldn't the doctor and his wife be shareholders of the corporation and pay themselves equal amounts of T5 dividends thus reducing their personal tax burden?

Matt.

 

Not only doctor's, but any other professional or people with specific skills.

 

I knew of a Software Engineer that has a corporation where he and his wife own all the shares. He is the only employee of the corporation and does not take a salary.

 

Once a year the corporation kicks a big dividend to the shareholders (husband and wife) that is eligible for the dividend tax credit.  

 

Other than the 10% corporate tax, the husband and wife pay very little tax, enabling them to not pay the same amount of tax a regular salary employee would pay.

 

Furthermore they write off an amazing amount of stuff through the corporation allowing them to avoid GST taxes as the corporation writes the GST off against what it collected.

Edited by DavidSchell, 09 September 2017 - 03:30 PM.

[rjag]

https://omny.fm/show...eptember-9-lead

 

have a listen from 1:15 to about 4:00 he makes a good argument about why this is bad

[tjv]

Isn't there a shortage of doctors in this country?  Tax policies such of this could easily drive new medical graduates south to the US with better salaries, lower taxes, etc.  We need policies that encourage more doctors not less

 

Anyone know where I can buy an anti Trudeau bumper sticker lol.  This guy has the IQ of a goldfish

[VicHockeyFan]

Anyone know where I can buy an anti Trudeau bumper sticker lol.  This guy has the IQ of a goldfish

 

This kind of stuff is popular with the "middle class" working Joe.   You can just keep taxing the "rich", right?

[RFS]

This kind of stuff is popular with the "middle class" working Joe. You can just keep taxing the "rich", right?

Not even the working joe. More like the civil servant class whic is large and influential in Canada