Tax changes - fact or fiction?

[The Green Barbarian]

It's time for the rich to stop avoiding their taxes and pay their fair share.
.

You lost me here. This phrase "fair share" is just virtue signaling nonsense used by people who are really bad at math.

[NotNorthAnymore]

There's a good letter to the editor in today's Penticton Western, written by a fellow who now employs several people. He says under the proposed changes, he wouldn't have been able to take the risk of starting up his business, and he explains why.

For every business that gets off the ground successfully and goes on to generate more jobs, there are plenty more that barely manage to squeak by, or fail. A few are wildly successful, but most are not.

If starting a small business was truly an easy road to riches, everyone would be doing it. IMO, this really is about envy. Whether JT even understands what he's doing is questionable. If he does understand it, he's playing with people's basest emotions to score political points, at our expense.

As a small "Mom & Pop" operation I can attest to the fact that it is not easy to make a living from a small business.
Been at it for 17 years and only in the last 5 have I been able to pull reasonable wages and pay the wife for her work.
Had to work a second job for the beginning until we got this one up and running properly.

It is no easy road to riches for sure.

Seen lots that have tried to do exactly what I, do and fail.

No I don't need to have my taxes increased, and not be able to save money away, for the upcoming lean times.

[The Green Barbarian]

I love the title of this story:

Docs, Trudeau butt heads

I would have put the last two words together.

https://www.castanet.net/edition/news-s ... htm#205996

[goalie]

Doctors are middle class now? Who knew

[beancounter]

I fear this will do more long term harm than any good the additional tax the gov't will collect on it.

There must be some incentive for small business owners to assume the risk and burdens they take on. Small business is the backbone of any country and the risk takers must reap some sort of reward for their efforts, or there is going to be a whole lot of employees out of work.

I see it time and time again where the owners of small businesses go without pay/time off, etc just so they can make payroll for their employees and keep their firms afloat. The employees have no risk should the business go under, other than having to find a new job. The owners must still pay their bills off or risk losing everything they have worked for. Many small business owners do make a decent living when times are good, but in times of economic stress they also take the hit. There is no unemployment insurance or bail-outs for them.

Most people who criticize business owners really don't know what these owners put into their operations in terms of commitment, time away from family and/or finances. I'm not talking huge corporations here, but small retail/service shop owners who are just trying to make a living.

Justin really needs to pay more than smug lip service to these concerns.

[beancounter]

Doctors are middle class now? Who knew

I think you would be very surprised at the "take home" amount for many family doctors, particularly considering the investment they have put into their education.

[Boda]

Here are two "articles" that may help contributors put the proposed tax changes into perspective.

http://business.financialpost.com/personal-finance/managing-wealth/four-new-strategies-you-can-use-this-year-to-get-ahead-of-ottawas-proposed-tax-changes

http://www.fin.gc.ca/n17/data/tppc-pfsp-eng.pdf

The rule changes do not seem to be aimed at the personal corporations that have "family" shareholders that have made significant "investment" contributions to the business, or that have family members who make significant "work" contributions businesses, but at personal businesses that "sprinkle" dividends to family members who make or have made only limited contributions to the business. It will also affect business owners that use their personal businesses to shelter income (business income that is not paid out as salaries or dividends nor is invested in core business improvements).

Yes, this is going to mean that some business owners and their shareholders who receive sprinkled income will pay more in tax. However, it will level the playing field for all privately owned small businesses. Will it affect the smaller Ma & Pop family businesses earning under $150,000 annually, probably not significantly. Will it affect the doctor, lawyer, accountant, or architect that has a corporate income over $300,000 annually who has enjoyed a "sprinkled" family income and reduced taxes, yes it will. Will this curtail small business development, no. It will encourage small business to re-organize. It will encourage them to examine their employment and hourly pay practices, and it will encourage them to manage their investments and capital gains not as income shelters, but as true "corporate" investments.

To me that is "tax fairness" that evens the small business tax playing field.

Thanks for posting those articles Erinmore, I wholeheartedly agree with your analyses summary.
Whether the proposed tax law changes to eliminate "income sprinkling" and other possibly "unfair" advantages should or should not be referred to as "loopholes" is to me just semantics.
There are currently many wives of Canadian small business owners coincidentally drawing very similar salaries with similar benefits from their husbands co-owned company as their husband does.
All CRA has to do to disprove the wife's' eligibility is prove that she did not work xxxx hours last year reviewing the company tax file prepared by an outside source before submitting. Or that her time was unjustifiably compensated, etc.

[erinmore3775]

http://www.pentictonwesternnews.com/opinion/letter-with-tax-changes-my-business-wouldnt-exist/

I think it is important to examine carefully the information provided in the Letter to the Editor of the Penticton Western newspaper. The letter is in opposition to the tax changes being proposed for small businesses. The author writes,

"I could not have made the jump from employee to employer without the ability to split income with my spouse. Did she write software? No. Did she directly work in my business? At times. Was she critical to the success of my business? Yes."

It is important to note that this writer and the doctor that confronted Trudeau at the Kelowna open forum are examples of those that will be affected directly by the strengthening of the tax code. Their spouses were essential to their success not by contributing significantly by investment or direct labour to the small business, but to the reduction of the household expenses by providing childcare. The small business owner and the doctor split their incomes with their spouses even though their only contribution to the "corporation" was child care and spousal/residential support. By their own acknowledgement, their spouses did not contribute directly to the small business corporation. What the spousal sprinkling did was allow the primary earner/owner of the corporation to significantly reduce the tax paid on the earnings by diverting some of those earnings to their spouse, who paid tax at a reduced rate.

This is in sharp contrast to the dentist or the engineer whose spouse "works" within the corporation as the bookkeeper, receptionist, or IT person and is paid a salary for their efforts. This spouse could also have been paid a dividend if the spouse could show that they had contributed a significant share to the original company start-up. (simplified example: owner $35,000 share, spouse $15,000 share of start-up entitles spouse to approximately 30% of the "earned" dividends of the corporation).

What these new changes are designed to do is ensure that a false corporation cannot be used to reduce income tax. It will not affect any small business corporation that has spousal employees that provide significant work contributions or spouses or relatives that have invested significant capital in the corporation and are paid a dividend.

[Veovis]

She argued that preferential tax treatment for professionals and small businesses that incorporate is meant to compensate for the fact that they don't have access to pensions, vacation pay, Employment Insurance, sick leave, maternity leave and other benefits enjoyed by employees

This is not an unreasonable point by any means made at the forum. Employees demand more and more of these items everyday, yet those who provide them often can't receive them and must plan in other ways.

Trudeau said the current tax system has already created two classes of Canadians, "

Perhaps Trudeau should look in a mirror before preaching about "classes of Canadians". There has always been and this will only serve to ensure HIS class stays the rich and ruling class.

[maryjane48]

I think you would be very surprised at the "take home" amount for many family doctors, particularly considering the investment they have put into their education.

like teachers?

[erinmore3775]

This article may help some understand "sprinkling."


http://www.macleans.ca/opinion/what-do-doctors-really-have-to-fear-from-the-feds-tax-crackdown/

From the above article:

"Many doctors—30,280 of them in 2011—also owned a private company (technically, a Canadian Controlled Private Corporation or CCPC). These companies offer tax-planning possibilities not open to salaried or unincorporated individuals. For starters, they include a provision that permits up to $500,000 in income received via the private company to be taxed at a rate of about 15 per cent—far lower than the top individual income tax rate of about 50 per cent.

Such private company income will be further taxed when it is paid out to individuals and their families to use, though it can still end up being taxed at effective rates well below doctors facing the top rate of 50 per cent by using what Morneau calls “income sprinkling,” also known as income splitting. That refers to the practice of using a private company to channel income to other family members who are generally in lower income-tax brackets in order to avoid having to pay tax in that top 50-per-cent tax bracket."


This article explains some of the background related to the proposed tax code changes.

http://www.macleans.ca/economy/money-economy/inside-ottawas-plan-to-crack-down-on-small-business-tax-loopholes/

Perhaps these articles and their references will help focus the debate around these Canadian Controlled Private Corporation tax code changes.

[alfred2]

I think you would be very surprised at the "take home" amount for many family doctors, particularly considering the investment they have put into their education.

like teachers?

no doctors are much more educated and are more needed with high education.

[rustled]

Respectfully, erinmore3775, as the ex-spouse of someone who used every single cent of our children's education fund to start up his business, I disagree with your analysis.

You continue to perpetuate the myth that these changes will only affect wealthy folk who are screwing over the less fortunate, and you downplay the enormous contribution, fiscal and economic and service-wise, that all small businesses (including private practice medical offices) provide to our communities.

[Veovis]

like teachers?

Teachers are not like doctors, they are more in line with lawyers, accountants and comparable types of education times and costs.


Erinmore - the entire route through company and wages vs dividends etc etc through CCPC's has had benefits, doctors have used them for potential tax planning as well as limiting liability as well. I can understand the theory of saying "let's get them" it's just that it's a poor theory.

You see taking doctors as this great example, our PM can make grand statements about how he's going to "get their money" as they are too "rich" (he isn't but they sure are I guess). What do you think happens next? You think doctors in Canada are going to take this pay cut? Or do you think all contract negotiations just went up 20% $$ value in every province, and where do you think that will come from?

You're right, higher PST and other tax rates. Watch MSP JUMP not reduce when the NDP find out what the great PM's long term effects are......or did people think doctors are just going to roll over? In the mean time a lot of standard business will simply close.

We have a PM with a spending problem, not a tax code problem, but tax tax and more tax has been the current plan, not restraint and budgeting.

But then what can we expect from a kid raised with a bottomless piggiebank?....

[rustled]

I think you would be very surprised at the "take home" amount for many family doctors, particularly considering the investment they have put into their education.

like teachers?

I suppose there may be teachers who then risk every bit of collateral they'll have for the next couple of decades to set up a small school, hire administrative staff, and put in the hours required to get their small enterprise from red to black and keep it there. But I find it highly unlikely.