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Trudeau's small business tax changes


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#21 Mike K.

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Posted 09 September 2017 - 06:40 PM

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.


If Revenue Canada were to audit your friend, the good times would be over.

That's why these taxation measures are so silly. The government is failing to audit enough individuals, so therefore "everyone" must be up to no good.

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#22 sdwright.vic

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Posted 09 September 2017 - 07:05 PM

Well gee... where is the government to come up with the money to audit these people?
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#23 Mike K.

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Posted 09 September 2017 - 07:54 PM

By auditing more people? I dunno, if we're all up to no good, the source of revenue should be pretty straightforward, right? Or maybe the incidents of abuse are so low that auditing really is a waste of resources? We're not really being told.

Oh, and the Liberals will end their "consultation" with Canadians in regards to the tax changes a week before Small Business Week, lol.

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#24 Matt R.

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Posted 09 September 2017 - 08:13 PM

If Revenue Canada were to audit your friend, the good times would be over.


That's why these taxation measures are so silly. The government is failing to audit enough individuals, so therefore "everyone" must be up to no good.


There's nothing wrong with paying yourself T5 dividend income, which you then have to pay tax on. Running personal espenses through the corp. is a bit sketchy and I can see how easy that is to abuse.

Paying the owners of the corporation this way isn't the same as the "income sprinkling" referred to above. No, you cannot pay your kids $50 per hour to dishwash and then put $40 of that into an RESP. There is such a thing as fair market value for workers.


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#25 lanforod

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Posted 09 September 2017 - 09:46 PM

The intent of taxation is to tax income earned from working at set rates. The software engineer described above gets around that with legal loopholes, but it goes against the intent of our taxation system. Its folks doing it that way that caused JT et. all to want to fix this.

I agree there is a problem. They're taking a hammer to the problem though, not a chisel. It'll affect people who don't skirt taxes in this way.

 

Perhaps they should change the entire system so all income regardless of source (dividend, standard income, capital gains etc. up to the first 100k is taxed at 20% (or whatever makes the numbers work) regardless. No exceptions, no writeoffs on that. A few things can lower that taxable amount, like charitable donations. Simple.

 

All corporate income is taxed at one rate as well.

 

Doesn't solve the expenses claims in 'personal' corporations, but I don't see a way to deal with that other than audits.


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#26 sdwright.vic

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Posted 10 September 2017 - 07:13 AM

By auditing more people? I dunno, if we're all up to no good, the source of revenue should be pretty straightforward, right? Or maybe the incidents of abuse are so low that auditing really is a waste of resources? We're not really being told.


I can tell you it because there are not enough auditors for the amount of audits that need done. Instead of cutting budgets like Harper did, Trudeau is starting to increase them with the caveat of measurable deliverables. That means for every dollar of increase there must be x dollars in positive production value. Maybe after all the budget cuts, in two years levels may be up enough to audit and collect at what is required for what's out there to be done.
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#27 tjv

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Posted 10 September 2017 - 12:20 PM

 No, you cannot pay your kids $50 per hour to dishwash and then put $40 of that into an RESP. There is such a thing as fair market value for workers.

I deal with government bureaucrats all the time and if they say something like this I often tell them to quote a specific law.  Oh can't quote anything, then lets move on.

 

I could also argue that a lot of government workers are grossly overpaid.  A friends kid just got hired at the City for $28/hr to pick up garbage.  If there is a law then that should apply to him as well.


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#28 Matt R.

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Posted 10 September 2017 - 04:25 PM

Yah $28 is fine. :)

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#29 rjag

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Posted 10 September 2017 - 08:19 PM

https://www.linkedin...e-who-macintosh

 

I recently read a Globe and Mail article reporting on the Liberal caucus meetings held in Kelowna. In the article the Prime Minister of Canada, and the leader of your party, was quoted as follows; “I want to be clear: people who make $50,000 a year should not pay higher taxes than people who make $250,000 a year Mr. Trudeau told his MP’s”.  I have never been a politically active person but feel compelled to respond to this comment.

 

First of all, I am a tax partner at the largest independent accounting firm in the southern interior of British Columbia. For the last 25 years we have assisted small business owners and primarily owners of private corporations. As a result, I can speak from first hand knowledge and experience. We have thousands of clients and I can state that the situation the Prime Minister has described does not exist. It does not exist because under no scenario is this possible. If your leader is describing the proposed tax changes to you in this way then I strongly suggest your are being misled and lied to.

Edited by rjag, 10 September 2017 - 08:19 PM.

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#30 lanforod

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Posted 11 September 2017 - 07:18 AM

In the example from DavidSchell, that could be a case where someone make a lot of money pays less taxes (as a percentage) than someone making 50k, on a single year basis.

Over the long run though, I don't think so. The money can't legally be used for personal use while sitting in the corporation. How does the software engineer retire?



#31 tjv

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Posted 11 September 2017 - 08:34 AM

^very simple, the software engineer retires but keeps the company operational.  He pays himself a salary every year until the company bank account is dry.  Once that is done he files for dissolution of the corporation


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#32 lanforod

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Posted 11 September 2017 - 09:02 AM

Is that legal?



#33 Mattjvd

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Posted 11 September 2017 - 09:12 AM

Is that legal?


I believe so. But when that company files it's taxes and has 0 revenues year after year, he'll probably get some questions
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#34 Mike K.

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Posted 11 September 2017 - 10:01 AM

For sure he will.

 

Even in this conversation it looks like the grievances being aired all circle back to people abusing the system and not those who are operating within the tax regime and using 'loopholes' as they were designed to be used.


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#35 tjv

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Posted 11 September 2017 - 08:55 PM

No he won't. not a single question.  Friends do that when they retire all the time



#36 Mike K.

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Posted 11 September 2017 - 09:05 PM

The NDP has increased small business taxes by 9% from 11% to 12%.

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#37 lanforod

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Posted 12 September 2017 - 07:23 AM

The NDP has increased small business taxes by 9% from 11% to 12%.

Erm, my understanding is the general corporate tax went up from 11 to 12. The small business tax went down 0.5% though.


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#38 Mike K.

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Posted 12 September 2017 - 07:53 AM

Interesting! In the articles I read immediately after the budget was released there was no mention of the decrease from 2.5%. The only mention was 11% to 12%.

 

So corporations earning a profit below $500,000 per annum pay only 2.0% corporate tax effective immediately?


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#39 jonny

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Posted 12 September 2017 - 08:20 AM

Erm, my understanding is the general corporate tax went up from 11 to 12. The small business tax went down 0.5% though.

Correct. 



#40 lanforod

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Posted 12 September 2017 - 10:51 AM

Interesting! In the articles I read immediately after the budget was released there was no mention of the decrease from 2.5%. The only mention was 11% to 12%.

 

So corporations earning a profit below $500,000 per annum pay only 2.0% corporate tax effective immediately?

 

For 2018 tax year, yes (so effective April 1, 2017). Combined rate with federal, the rate is just 12.62% (was 13%). Not sure why it isn't 12.5 though, something to do with the math.


Edited by lanforod, 12 September 2017 - 10:52 AM.


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