Should this kind of tax dodge be legal?

[rustled]

The bottom line is that many of the tax credits available to Canadian Controlled Private Corporations are being used by rich people in ways that were never intended. And it's costing the treasury a small fortune, that then translates into higher taxes for the rest of us. During the election, Trudeau promised to review the matter. And I hope he does.

Many have tried to show you this isn't the case. Still, you cling to your belief that lots of rich people are doing legal things that are "costing the treasury a small fortune".

You're tenacious, and dedicated to getting people outraged over something you admit you don't understand, because you want us to support targeting them, the way you do.

Perhaps this is because in your view, we need a lot more government-provided services, but you don't want to have to pay more to get them. It seems to me, finding someone to foot the bill for what you want is your true goal.

To my mind, those who contribute the most in terms of their risk and their effort have already helped the government to collect considerably more taxes, compared to those who don't contribute to the same level. It seems this isn't "fair" enough for you, though.

It seems to me, you want those people, specifically, the high contributors and economy-drivers, to be the only ones who pay more so that you and your families can enjoy more government services, without it costing you and your families anything.

Once Trudeau's team starts looking into this more thoroughly, I hope he and his team are able to be truthful about what they find. Once they fully understand the circumstances in context, along with the full consequences of doing what you want them to do, I hope he will do the right thing whether or not the facts match the optics.

[LANDM]

My response in Red

Oh but you are; whether you realize it or not. Because you were trying to make the case that because they take a big financial risk when they start up a new operating business, and have to put in lots of hours over and above a regular work week, that somehow entitles them access to certain tax breaks when they retire.

I never said that. Please don't tell me what I am saying. It is evident that this is the same strategy with your examples that show illegal activity....tax evasion. You are the one focusing on operating/inactive businesses and then describe situations that are not taxed as you describe.

Tax breaks that were originally intended to help small businesses thrive, in the hope that they would then hire more employees. Those tax breaks were never intended to help entrepreneurs lower their personal income taxes (yet that is what most of them do), and they most definitely were never intended to help them reduce their taxes when they retire.

There are tax regulations that are focused on small business and there are tax regulations that are general corporate ones. You are confusing "intent".

Allowing people who are not running an operating business, to structure their financial affairs as if they are, by allowing them to set up a Canadian Controlled Private Corporation, is wrong and should be stopped.

So you want to limit the ability to set up a corporation? That is insane.
There are many reasons, besides "running an operating business" to structure ones affairs within a corporation. The tax code clearly reflects the differences. The fact that you continually bring up instances that are incorrect doesn't change that. It clearly is not a case where, if you say something over and over, it then becomes true. Just because that it your strategy does not change the inability to alter the truth.


If we want to design a totally new program to deal with the specific issue of allowing small business owners who sell their business and retire, to spread their capital gain over time, as opposed to having to pay tax on it all at once, then lets design that program and call it what it is. A small business owners retirement fund. But, having people own Corporations that aren't really corporations at all, but merely tax shelters, is just plain wrong. Because doing so has resulted in unintended consequences that, while they benefit the wealthy few, result in the rest of us having to pick up the tab for it.

Why design a new program? The use of a corporation to effectively manage taxation, to some extent, already exists. It doesn't exist in the way you want it to, but it does exist. Your examples have not reflected legal uses, in general, so it isn't worth commenting on.
To say that people "own corporations that aren't really corporations at all" truly reflects the lack of understanding on this issue. It simply shows that you wish it were differently and claim a form of "intent" that has never existed. Corporate structure is not one dimensional and has never had only one intent.


The number of people who suddenly get a windfall of between 2 and 5 million dollars to put into their retirement fund are very small relative to the population at large.

That is irrelevant. The ability to use a corporation for certain things is available to anyone. There is no minimum level of assets. There are points where it becomes useful, but it is available to anyone.

While it is true that not everything applies to everyone, things like RRSPs and or TFSAs do apply to most (even entrepreneurs)
But they do get the benefit of being able to income split with their spouse and kids.

Rrsp's tfsa's and corporations are mechanisms that virtually anyone can take advantage of.

As my spouse and I have both held management positions in the past, we understand very well what it means to be "responsible for your employees". You don't have to be the owner of the business for that to apply.

Once again, the fact that you equate being an employee with being an owner, on a responsibility level, shows your complete lack of understanding.

I have supplied lots of evidence to support my position that the small business tax code needs reviewing. You are correct when you say I'm no expert, but the people I have quoted most certainly are. Yet you never address any of the information in those quotes; preferring instead to attack me on the grounds that I don't know what I'm talking about. Well fine, don't listen to me. But people do need to listen to what a lot of those people I quoted are saying. Because they DO know what they're talking about. Most of them are economists and tax experts who are very well versed in the subject.

No, the "evidence" you have supplied either shows illegal tax evasion or incorrect application of the tax code (eg. Active vs passive income). This has been brought up over and over but you just don't get it.
I agree that the tax structure of Canada is too complex and unnecessarily burdensome. However, call your intent what it actually is.....a simple wish to tax wealthier people at a higher level so you can pay less. That's fine if that is your wish. However, please don't use incorrect data or suppositions in your attempt to support your views. There are substantial anti-avoidance measures in place for many of the instances you claim exist. Your lack of understanding of such measures is unfortunate as it, perhaps, allows you to actually believe the things that you claim are taking place legally.

The bottom line is that many of the tax credits available to Canadian Controlled Private Corporations are being used by rich people in ways that were never intended. And it's costing the treasury a small fortune, that then translates into higher taxes for the rest of us. During the election, Trudeau promised to review the matter. And I hope he does.

Please support your claim of "intent". Corporate tax code is in place for anyone, rich or poor. Are there valid tax management strategies in place that are used by "rich people"? Absolutely!
However, deferral is not the same as elimination. It does not "cost the treasury a small fortune" if the mechanisms are legal. It spreads out the government tax income over a longer period of time but doesn't eliminate it. That is for the government to manage, since that is money that is available for their expenditures.

[Merry]

Throughout this thread, my credibility has been questioned based on my lack of expertise about how individuals use privately owned corporations to reduce the size of their tax bill.

I have tried to counter that by providing quotes from people who know a lot more than either I, or most of the posters on these forums, about the subject. But was then criticized for being the "cut and paste it Queen".

So it appears that I can't win. Because if I do the research and base my comments on what I've discovered, I'm accused of "misunderstanding what I've read". But if I provide direct quotes from what I've read, so that people can interpret it for themselves, then I'm the "cut and paste Queen".

Frankly, as I suspect that most of my detractors are folks who are personally benefiting from the system I'm criticising, it's not surprising that they are so vehemently defending such a system. But what about the rest of us? Do we really not mind paying a little bit more income tax, just so the favoured few can pay a little bit less?

During the course of my research into the subject, I came across an article by Michael Webb, who is a Professor at the University of Victoria. Even though the main focus of his article was international tax shelters, it also provided good overall insight into the subject of rich people using corporations to lower their personal income tax bills.

Here are a few of the comments from that article, that I found relevant to what is being discussed in this thread (my bold):

Public conversations about taxation have long been dominated by conservative demands for tax cuts for those much cited icons—job-creating businesses and hard-working families. Less attention has been paid to the issue of who pays more tax to fund tax cuts for others.

tax avoidance means using legal mechanisms to reduce taxes owing. Aggressive tax avoidance is using tax provisions to reduce taxes in ways not intended by the legislation

Ottawa has made a great deal of tax avoidance legal for businesses and wealthy individuals, thereby lessening the burden on those best able to pay. In contrast, individuals earning wages and salaries have no choice about how their income is taxed and cannot structure their earnings to minimize taxes.

In the past, light taxation of corporate profits was sometimes justified with the argument that the profits would eventually be taxed in the hands of shareholders. But Canada has also dramatically reduced the taxation of investment earnings at the level of individuals, by reducing capital gains taxes, taxing dividends at a reduced rate and introducing generous tax-free savings accounts. Corporate profits now are lightly taxed at both the corporate and individual levels. The fact that most investment earnings and the associated tax breaks go to the wealthiest Canadians makes the problem worse.

need for greater pressure from citizens, which will require continued efforts to lift the shroud of secrecy that surrounds corporate taxation in Canada.

http://reviewcanada.ca/magazine/2015/09 ... -fortunes/

I draw your attention to the fourth quote in particular. Because this highlights exactly how people are able to use a corporate tax structure to reduce their personal income taxes.

Mr. and Mrs. Owner sell their business (lets say for 4 million, 3 million of which is a capital gain), transfer it to a shell corporation on a tax free basis (so as long as the capital remains within the shell corporation, that 4 million will not be taxed). The money is invested, and all the proceeds are taxed at a much lower rate than the personal income tax rate. When money is paid out of the corporation to Mr. & Mrs. Owner, it is usually in the form of dividend income, which is also taxed at a lower rate than their personal income tax rate would be for the same amount.

So, with that kind of an initial investment, Mr. & Mrs. Owner are able to generate a very comfortable retirement income, which will be taxed at a much lower rate than the retirement income of those of us who are getting ours from our RRSP (which is taxed at the full personal income tax rate).

In addition to which, if Mr. & Mrs. Owner decide they want to take a bit more out of their company in any given year than what they are receiving in dividend income, all they have to do is "sell" some of their shares back to their own company, and the proceeds from the sale will be taxed at the capital gains rate (which is also a lot less than the personal income tax rate).

The bottom line is that by allowing people to set up "shell companies" ( the definition of which is "is a type of company that only exists on paper, allowing the person who uses it to funnel money through it and avoid paying taxes. Typically, this type of corporation has a legal existence but provides few or no actual products or services") we are allowing those people to pay a much lower tax rate than the rest of us, despite their having above average annual incomes.

And the problem with that, is that every time one group avoids paying their fair share of tax, the rest of us have to pay more tax in order to make up the shortfall.