267 replies to this topic

[lanforod]

The other change is removing the PST from Hydro bills for businesses. Half effective Oct 1, the other half in 2019.

[lanforod]

I don't mind this budget too much overall, even as an NDP budget.  It doesn't have too much of the stupid expensive stuff that the NDP promised... most of that probably comes in April.

I don't like changing the carbon tax to a general slush fund. No incentive to not jack carbon tax waaaay up now.

[Mike K.]

Yes, and the carbon tax 'slush fund' was exactly what I was afraid would happen.

[Matt R.]

Wait, the PST is coming off my commercial Hydro account?

 

Matt.

[lanforod]

Wait, the PST is coming off my commercial Hydro account?

 

Matt.

 

Yup. Down to 3.5% (was to be Oct 1), all gone sometime in 2019 (April 1?). 

 

Edit:

Yep, April 1, 2019, complete phase out.

 

 

Note that this is one of the initiatives the Liberals put in their February budget, with original implementation date of Oct 1. The NDP kept the plan to phase out the PST, but the actual implementation date will not be Oct 1 likely, but in the future, as the legislation needs to pass.

Edited by lanforod, 12 September 2017 - 01:50 PM.

[johnk]

I think Trudeau & co. will get this one through just as long as they keep putting "rich people" and "loophole" in the same sentence.

[Wally]

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.

 

I am assuming that your friend is employed as a software engineer and his fees are paid to the company. He would pay a general corporate tax rate of 11% and then personal taxes on the amount that was paid as a dividend. The system is set up so that the net amounts are similar (the exception being income splitting but you didn't mention if the wife has her own income or not). If there was a big advantage to using this model then everyone would be doing it. Sure he saves some money by writing off his GST and including some meals,etc as business expenses but that is offset by his carrying costs of the corporation and his legal / accounting fees. Now he could be using this to defer some income into his later years as a sort of pension or retirement fund (which is what it is there for) but he would not be able to claim a dividend if there is no income and he is assuming that the tax on his retirement income will be lower than it is now.

[sdwright.vic]

Also you can't pay dividends when you owe the government Trust Funds... and that happens ALOT.

Edited by sdwright.vic, 13 September 2017 - 04:34 PM.

[Awaiting Juno]

Recently (January), I made the leap from government to private sector, more specifically I made the leap to go from helping my husband run our business part-time to helping run it full-time.  I can say without a doubt, I work more now than I did then (there's more flexibility, I'm generally happier, but no running a small business isn't an easy road to riches.  I think there's a lot of misconceptions out there about these changes and what they will mean for the small business climate in British Columbia.  As an economist, and now a small business co-owner, I think these changes are awful public policy driven by some academics who have failed to acquaint themselves fully with the pragmatic reasons these provisions are needed and used and what the real-world impact of these changes will be.  I'll happily concede there are problems - but those problems merit a chisel not a shotgun, and the absence of fully understanding the impacts these changes will have is unnerving.

 

To put my comments on this in context - small business accounts for 30% of the economy across Canada, and some 33% here in BC.  It employs more 8 million people, and of those more than half are employed in businesses with less than 20 people.  Only 4 in 10 small business have ownership that is majority female.  Keep in mind not all small businesses choose to incorporate, but many do, and there are good reasons to encourage incorporation.  Most are owned by those who are over 40.  A good chunk of them do not enjoy excessive profits and of note - they absolutely cannot use the strategies of large public corporations and I'm not sure that we really want to encourage large public corporations at the expense of small businesses.

 

What's important to remember, is that when it comes to small business - the tax picture is more complex and simply comparing business owners to employees is unfair.  Employees have access to EI (including maternity savings), TFSAs, RRSPs, sometimes pensions, often disability insurance, often maternity leave top-ups, Employment Standards regulations and recourse, minimum wage, over time, etc.  Small business owners often put their personal assets on the line to back the operations of their businesses, and at the end of the day must put the needs of their employees, the CRA and their clients ahead of themselves.  The small business owner gets paid last and might well lose everything with their venture.  It is also important to note that the business owner pays tax twice - a corporate tax (when the money remains in the company), and then personal income taxes (when the money is taken out of the company to fund personal needs - housing, food, clothing, etc.)  Further, business owners have based many decisions on what is long standing tax law (more than 40 years) - and unlike individuals, they do not have the luxury of planning for a year, but often must plan for the decades ahead.

 

So let's say you decide to quit the day job and start a small business.  Great!  Now reality - what are the odds that you're going to be able to do that, and do it successfully without a supportive spouse?  Keep in mind that a small business, and in particular a new small business is a demanding venture. (There's an apt saying, you have the "flexibility" to choose which 18 hours of the day you work).  Who will take on the load to make sure you can focus on getting the business going and making it a success?  Everything else doesn't stop - the kids still need to get to and from school, people need clean clothes, meals need to be made, bills need to paid (really true if it's the partner's day job that is mitigating the risk).  Your long work hours take a toll - and now the government is telling you that you can't "share the income" from the business with the person who likely a) gave consent to start it in the first place. b) put family assets at risk for it. c) is taking on the load of the domestic duties (more so when there are kids involved).  As an aside, what do you think will happen to the divorce rate among small business owners when the "sprinkling" provision is eliminated?  Now, also a reality of small businesses is that they demand a redirection of resources.  In part to mitigate the risk of an unforeseen contingency and in part to finance future growth.  Are you going to sink funds into your personal TFSA and RRSP and RESPs - funds that can't be used easily by the business should the need arise, or are you going to be able to put all your money into the business?  Under the current rules, the choice to direct funds to the business is defensible and reasonable - under the changes it won't be possible, business owners will have to choose to take the money personally (paying personal tax on it, and then if they do put it into a RRSP, or RESP they may not be able to withdraw it later for business needs).  So, these small businesses will have less corporate resources available to fund unforeseen contingencies (some of which can be really expensive!) or future growth.  Under the current rules, the business owner could be reassured that the funds in the business could be used later as a form of pension (and taxed when taken), disability insurance (taxed when taken as income), or to fund children's post secondary education (again taxed in the hands of the child).  Businesses need this flexibility and ability to plan and pay for life events (note - if a business owner is wanting a family, then need to plan for their own maternity leave including paying to ensure the business can continue during that time) and business needs.  On the note of tax fairness - I think it's fair that taxation occur at the "family level" - many benefits are based on "family income" so it makes sense that families be taxed as a family and the removal of income splitting from all families was a travesty of the current government. 

 

That covers the passive income and sprinkling provisions that are proposed.  Now turning to capital gains.  These measures apply more to business succession planning, but what do you think will happen when it becomes much more expensive to pass the family business to the next generation than to sell it to an outside source?  Fewer businesses (including family farms) will remain "family businesses" and more will be sold to larger corporate interests.  I'll be blunt - we'd love if someday some or all of our children decided to carry on our firm, shouldn't the decision as to whether or not it's "passed along" within the family or sold to an outside interest be at least neutral?  What do you think it does for a small business owner, and their approach to their business, when they are thinking that this is something that they are building for their children?  If they are sold to large corporate interests, do you think those "shareholders" care about the employees in the same way that the small business owner does?  What about caring about their community?

 

So why does this matter?  Because the implications go beyond simple math - it changes the rules of the game entirely, with very little notice.  The government has estimated that it will gain $250 million in revenue each year from these changes.  If employment in small business is reduced by as little as 5% by these changes, and each of those lost jobs generating $5k in tax revenue (a low estimate) these changes will cost the government more than $2 billion in revenue.  These changes mean few small businesses starting, fewer small businesses growing, fewer small businesses surviving, fewer small businesses lead by women, more family instability among small business owners, and a raft of other consequences.  This is bad public policy at its finest and we can stand together for the heart and spine of the Canadian economy - or we can watch this government rip it out and then wonder, why our economy just doesn't perform like it used to.

[Mike K.]

Holy smokes, AJ. I really, really hope you submit this in letter form to Murray Rankin and the panel assessing Canadian's feedback on the proposed changes.

[Mattjvd]

Very informative AJ! Thanks for adding that to the disscussion. I have a question re: getting taxed twice. Don't you deduct anything you pay to yourself as salary as an operating expense before calculating the corporation's income tax liability? You pay one or the other, not both. (Dividends are different)

[Benezet]

http://behindthenumb...come-splitters/

[Awaiting Juno]

Very informative AJ! Thanks for adding that to the disscussion. I have a question re: getting taxed twice. Don't you deduct anything you pay to yourself as salary as an operating expense before calculating the corporation's income tax liability? You pay one or the other, not both. (Dividends are different)

 

The money taken as salary is taxed as salary and deducted from corporate income as that money does not stay in the company - note, that money if taken as salary earns CPP credits, RRSP room and is often used by banks to determine the amount you can qualify for as a personal loan (ie. mortgage).  The money that is taken as dividends cannot be taken off of corporate income, is taxed corporately and then is taxed when it is paid as dividends - but there is a gross up.  As a result the system is neutral between taking money as dividends or taking it as salary - you'll pay the total tax owing at personal rates.  The most that incorporated professionals and small businesses get, is a bigger pool of after tax money (if it remains in the company) to grow - but that same money often is what funds growth or sees the business through a rough patch.  Note - in terms of total wealth, a business owner is better to put the money into an RRSP (where it's completely tax free to start with) first - however that money can't then be used for business purposes without some fairly painful consequences.

[Awaiting Juno]

Have to quibble with the CCPA article - I don't think its accurate as there's all kinds of nuances not considered.  Specifically circumstances where the incomes of the two individuals are fairly divergent.

[Mattjvd]

The money taken as salary is taxed as salary and deducted from corporate income as that money does not stay in the company - note, that money if taken as salary earns CPP credits, RRSP room and is often used by banks to determine the amount you can qualify for as a personal loan (ie. mortgage). The money that is taken as dividends cannot be taken off of corporate income, is taxed corporately and then is taxed when it is paid as dividends - but there is a gross up. As a result the system is neutral between taking money as dividends or taking it as salary - you'll pay the total tax owing at personal rates. The most that incorporated professionals and small businesses get, is a bigger pool of after tax money (if it remains in the company) to grow - but that same money often is what funds growth or sees the business through a rough patch. Note - in terms of total wealth, a business owner is better to put the money into an RRSP (where it's completely tax free to start with) first - however that money can't then be used for business purposes without some fairly painful consequences.

Thanks for answering. No doubt this will hurt a business's ability to invest in itself. I re-read your first post and think I just missunderstood the first time. I thought you were saying the money the owner takes gets taxed twice, first as the corporate income tax, then as personal income tax.

[Mike K.]

Thanks for answering. No doubt this will hurt a business's ability to invest in itself. I re-read your first post and think I just missunderstood the first time. I thought you were saying the money the owner takes gets taxed twice, first as the corporate income tax, then as personal income tax.

 

It often does get taxed twice if a business is able to earn more than salaries + expenses. Whatever is left behind gets taxed, and the following year if that money is dispersed as salary it'll get taxed again. Virtually every business owner whose company posts a profit will encounter this double tax.

[RFS]

http://behindthenumb...come-splitters/

Canadian centre for policy alternatives is not exactly an objective source on this topic is it mr issit?

[Mattjvd]

It often does get taxed twice if a business is able to earn more than salaries + expenses. Whatever is left behind gets taxed, and the following year if that money is dispersed as salary it'll get taxed again. Virtually every business owner whose company posts a profit will encounter this double tax.

Sure, but then it reduces that following year's corporate tax liability. Leading to the same total paid to CRA

[jonny]

It often does get taxed twice if a business is able to earn more than salaries + expenses. Whatever is left behind gets taxed, and the following year if that money is dispersed as salary it'll get taxed again. Virtually every business owner whose company posts a profit will encounter this double tax.

 

Yes and no to the double taxation angle. It's not purely double taxation because of the dividend gross up and credit mechanism, with offsets most of the double taxation. 

 

Sure, but then it reduces that following year's corporate tax liability. Leading to the same total paid to CRA

 

What do you mean? Taxes are an annual thing. A tax liability doesn't carry over from one year to another. 

[North Shore]

   On the note of tax fairness - I think it's fair that taxation occur at the "family level" - many benefits are based on "family income" so it makes sense that families be taxed as a family and the removal of income splitting from all families was a travesty of the current government. 

 

[Heavily edited] ^ This.