Should this kind of tax dodge be legal?

[Muzza]

Merry, I can only surmise that you have no concept of what it normally takes to start a business. Yes, sometimes people have it easy and strike it rich with little or no effort, but for most it is a many year struggle to finally succeed. By painting them all with the same brush, you will penalize those who struggled for a long time and sacrificed. My family has lived it.

There are so few of these "loopholes" and" tax breaks" that this is pretty much a waste of time and effort. However, I do agree that simplifying the tax code may level the playing field a little, and I mean very little, but may be worth it.

[maryjane48]

.

[Veovis]

If you are trying to show this as some "loophole" it has been clearly stated that crime does not equal a "loophole"

If you think so I am sure you will be starting a thread soon to call for the closing of banking loopholes when someone robs them at gun point.

Never mind the fact the headline is a lie, they defrauded for 9.9 million by claiming false expenses of 192 million.....but those who care nothing about the realities of the tax system will love this type of thing. They certainly should have gotten more than house arrest in my opinion, but that is an issue for the criminal code and judicial system and still nothing to do with the tax system.

[Merry]

You're joking right??? You are equating someone who risks all their life savings and sacrifices family life for years, works longs hours, often for little pay, to someone who moves to a town for a good paying job with no more responsibility than to show up for work each day???

No Muzza, I'm not joking. As someone who has spent 40 years of my life moving from one isolated town to the next, with a spouse who has sometimes had to work 16 hour shifts in minus 40 weather (to fix a breakdown before everything freezes up), who has watched that same spouse often work 14 days straight (despite supposedly being on a 5 and 2 shift), and who can testify to the number of times he's been called out in the middle of the night (and still had to get up at 5 to go to work the next day), I can tell you that the life of someone who works in industry's that are in isolated places, is not an easy life.

It's darned hard work, and often very dangerous work. And God help you if you have a medical emergency in a town that is hundreds of miles from the nearest hospital, and the roads are closed due to a winter storm. Ditto if you live in a place where the only way in and out is by sea plane, and the wind is blowing so hard it looks as if its raining horizontally. I have lived in both such places, and know what I'm talking about.

And my comment about the high prices in such places is the perfect truth. Partly the result of the cost of shipping goods into such isolated places, but also partly the result of some folks taking advantage of the fact that workers there have limited choice when it comes to places to shop. So, even though it may appear to someone living in Kelowna that the wages are high in such isolated places, they're not quite as high as they first appear when you take the cost of living in some of those isolated one industry towns into consideration.

Housing, both to buy and to rent (if you can even find any rental accommodation) is usually through the roof when the town is booming, but crashes the instant the commodity that is the reason for the town's existence begins to fall. And I've seen situations where people have literally had to board up their houses and just walk away.

So while, on the one hand, there is definitely opportunity to make a good living in such a place, it simply isn't true to say it's without risk. Because if the industry closes down, leaving you with a massive mortgage and a house you can't sell, you risk losing everything depending on what stage of life you're at when it happens. Even the cost of moving out of a place like that can be astronomical, given the isolation.

So your argument, which appears to be that small business owners deserve some kind of preferential tax treatment simply because they took on more risk than other workers during their working years, simply isn't true. Because risk comes in many forms. And the kind of risk that I described, which applies to workers in one industry isolated towns, although different is just as real.

That said, I have no objection to the Government providing targeted tax credits to small business that are designed to help them grow and hopefully employ more workers. What I'm objecting to is allowing folks who are no longer in business (or never actually owned an operating business in the first place) being allowed to set up a company which exists only on paper, to enable them to take advantage of tax breaks originally intended to help operating businesses.

If we want to create some kind of tax shelter to allow folks who sell their business to spread out the tax over several years instead of paying all at once, I have no problem with that. But let's give it a name, and set it up with its own set of rules, rather than letting them utilize rules that were never intended for that purpose. Because allowing folks to create companies that are nothing more than tax shelters is resulting in an abuse of the system, causing a huge loss of federal revenue that then has to be made up for in the form of higher taxes for everyone else.

Throughout this thread I've cited numerous prominent Canadians who also think that, in some cases, the tax rules surrounding Canadian Controlled Private Corporations are being used merely as tax shelters by wealthy people. Yet those Castanetters who claim I don't understand what I'm talking about, have completely ignored the comments of the people I've cited.

So here's a reminder of what some of those folks have said:
Justin Trudeau said:

a "large percentage" of small businesses have been created strictly to help wealthier Canadians save on their tax bills.

and he also said

the small business tax system needs "tweaking" to ensure it's aimed at small businesses that actually create jobs, not used as a tax dodge by wealthy individuals

The following quotes are from a newspaper article that refers to several studies on the subject:

Various academic and think tank studies have found that reductions in the small business tax rate disproportionately benefit wealthy individuals who incorporate their businesses in order to reduce their personal income tax burden, split income with family "shareholders" and avoid capital gains taxes.

Many small businesses are created to enable individuals to reduce personal tax rather than grow companies ... With corporate organization, it is easier to split income among family members holding shares of a corporation

Another study, co-authored in 2014 by Michael Wolfson, Canada's former assistant chief statistician, found that the wealthiest Canadians disproportionately take advantage of the preferential small business tax rate.

From 2001 to 2011, that study found that fewer than five per cent of Canadian taxpayers in the bottom half of the income scale owned at least 10 per cent of the shares in at least one Canadian-controlled private corporation (CCPC). By contrast, as much as 80 per cent of taxpayers in the top 0.01 per cent of income earners were CCPC owners.

In another study soon to be published in the Canadian Tax Journal, Wolfson and economist Scott Legree linked personal income tax returns to corporate returns. They found the federal treasury lost at least half a billion dollars in tax revenue that would have been paid had individuals not been able to funnel their personal income through corporations.

And that's a conservative estimate because the study did not include families who funnelled income through corporations to children no longer living under the same roof.

"The popular rhetoric is that the special low small business tax rate that is available to CCPCs is designed to support small businesses, in part because they face greater challenges than large businesses in areas such as financing and because they are believed to be major sources of job creation and entrepreneurship," concludes the study.

"However, our analysis suggests that roughly half a billion dollars annually is foregone in ways related primarily to income splitting, where no such benefits are generated."

And this quote, from a different newspaper article, refers to comments made by Jack Mintz, who is a renowned tax expert

One of Canada's foremost tax experts argues in a new paper that it's time to raise small-business tax rates because too many wealthy Canadians are using the rate to reduce their tax bill.

Economist Jack Mintz argues that about 60 per cent of the value of the small-business deduction — the amount small businesses are allowed to claim on their tax return if their total capital is low enough — accrues to households earning more than $200,000 a year.

Let me be clear and say that nobody is suggesting we stop giving tax credits to legitimate, operating business in an attempt to help them thrive and hopefully provide more employment. BUT we do need to take a long hard look at our current legislation, and find ways to prevent such tax breaks from being used by folks who were never the intended target.

Retired individuals with several million dollars in liquid assets, are hardly in need of special treatment from the tax man.

[Static]

Merry takes the cake for the longest posts. Just saying.

[Veovis]

Merry takes the cake for the longest posts. Just saying.

And somehow her life of moving around and working (and likely for good wages and benefits) somehow means make believe "loopholes" exist and that anyone that made better use of their lifetime earnings deserve to be penalized for doing so.

This has never been about tax issues for Merry, it is the same old "take from anyone I personally deem to have more than I approve of."

Justin has said many things as well, but that doesn't make them fact, he stated opinions, and perhaps things he has done personally with his free wealth he received, but its far different from someone (a real large percentage) that create a business, employ many, and eventually selling the business as a retirement fund.

Now many of the people who cry foul about this as well are the same ones who have nice pension plans funded by others, and sometimes by that same employer, but if they can make up a story where they look too rich, well "let's get them".

[Merry]

This has never been about tax issues for Merry

You're wrong Veovis. It has ALWAYS been about tax issues.

Justin has said many things as well, but that doesn't make them fact

I'm surprised that, during the election, you so vigorously defended a candidate you appear to think spouts nonsense much of the time. But, even if that is true, what about all the studies and opinions of tax experts that I cited? Are they all mistaken as well?

selling the business as a retirement fund.

The issue isn't using the funds from a business to fund retirement. The issue is creating a company that only exists on paper (because it doesn't actually provide any kind of goods or service) in order to take advantage of tax credits originally intended to apply only to operating businesses.

many of the people who cry foul about this as well are the same ones who have nice pension plans funded by others

I don't know what planet you live on Veovis, but the majority of Canadians no longer have workplace funded pension plans. They went the way of the do do bird, about the same time as unions lost most of their clout.

The fact is that 2/3 of the workforce don't have pension plans, and even those that do, don't have plans that are as good as they used to be (unless they're a civil servant).

And even older workers who may be lucky enough to have been a member of a pension plan at some point, likely won't get much of a benefit out of it, because so few workers have been able to remain with the same employer for a long enough period (the way they did in the past). Mining in particular, tends to force people to move to a new employer approximately every 10 years, once the mine is spent. And sometimes it can be a shorter time between moves than even that. Which means you're rarely with one employer long enough to build up a decent pension.

But even if you stayed with one employer for your entire lifetime, you'd never accumulate several million dollars in your pension fund, the way some lucky business owners are able to when they sell their business. Not that I resent them their good luck, that's not the point. More power to them that they have been so fortunate. No, my point is that having been so successful, they should not then be allowed to structure their affairs in such a way as to take advantage of tax credits that were never intended to benefit someone's retirement fund.

Small business tax credits were intended to help operating businesses. Period. And the fact that they've been hijacked, to help retired people with millions of dollars of capital in their retirement fund reduce their tax bill, is a disgrace which needs to be rectified.

Because, as I said before, people who have millions of dollars in their retirement fund, are NOT people who need help from the taxman. And I, for one, am fed up of paying more taxes, just so people like that can pay less.

[LANDM]

The terms you use to describe the ones that you pillory....."good luck", "good fortune", "fortunate", belie your feelings.

What you don't realize is that luck has nothing to do with the success of those you have the problems with. It is simply smart decisions and hard work and a risk tolerance that is beyond your understanding. To compare the risk with those who choose to work for a wage in a cyclical industry is certainly telling.

As I have said in a previous post, your confusion surrounding tax law for active/nonactive businesses and general corporate tax law is astounding, along with your confusion of "intent" in such matters.

All of the "loopholes" you describe are either illegal or available to all. The fact that someone has an asset base or net worth that makes it worthwhile to manage their tax matters by using slightly more complicated means is just as irrelevant as whining about some people's ability to fully contribute to their RRSP or TFSA for the exact same reasons, compared to some who have no spare cash to do so.
Yet, all of these mechanisms are available. Tax deferral doesn't mean tax elimination.
You are confused and any amount of cut and paste won't change that.

[Veovis]

I'm surprised that, during the election, you so vigorously defended a candidate you appear to think spouts nonsense much of the time. But, even if that is true, what about all the studies and opinions of tax experts that I cited? Are they all mistaken as well?

Unlike an NDP follower I don't take everything a party leader says as right or the gospel. I can however rationally evaluate the best of three crappy choices.

selling the business as a retirement fund.

The issue isn't using the funds from a business to fund retirement. The issue is creating a company that only exists on paper (because it doesn't actually provide any kind of goods or service) in order to take advantage of tax credits originally intended to apply only to operating businesses.

You really need to stop, since they don't get the tax credits you are complaining about it on NON-ACTIVE income, it isn't a loophole like you keep crying. You keep complaining about things that don't exist, and finding one person to state they are isn't fact, it's just finding someone who will post online as an "expert" to support your view. There are people who are willing to do the same about vaccinations too, doesn't make it any less nuts.

The fact you think anyone who created wealth deserves to lose at lest half of it when they retire (even though tax has already been paid on it all) makes it clear this has little to do with tax code reform, and more of the "get the rich" "occupy wal street" garbage that bases itself with 1% fact and 99% hysteria.

REform isn't bad, all systems can often need improvement, but that isn't what you are about that has been clear.

[Merry]

luck has nothing to do with the success of those you have the problems with. It is simply smart decisions and hard work and a risk tolerance that is beyond your understanding.

Although making the right choices, working hard, and being willing to take a bit of a risk are all necessities, there is also a certain element of luck to everything that happens in our lives. I have known entrepreneurs who did all those things you mention, but failed anyway through no fault of their own, when an unexpected "down" cycle suddenly hit the economy. And ditto for many ordinary workers, who suddenly and unexpectedly got laid off when the "down" cycle hit.

To compare the risk with those who choose to work for a wage in a cyclical industry is certainly telling.

Although it's a different kind of risk, there is risk involved in just about every occupation.

“Risk” comes in many different forms. Firefighters and police, for example, put their lives on the line every day in the course of earning their living. Ditto for military personnel. Yet they don’t get any special tax breaks to reflect the risk earning their livelihood entails.

I realize that risking ones’ life is not the same as the financial risk the small business owner takes. Because risking one’s life is a far greater risk IMO. However, it's a very good example of different kinds of risk applicable to different occupations.

And workers in isolated communities face risk too. Financial, because the inevitable closure of the single industry could well lead to financial ruin if they are unable to sell a home purchased in a town like that, often at market peak. And life threatening, because many resource jobs involve extremely dangerous work. In addition to which, as I pointed out before, medical assistance is not always readily available in such places. So, even if you suffer a non work related medical emergency (such as a stroke) it is by no means certain you will receive medical assistance in time to save your life. Particularly if it happens in winter, and the roads are closed.

My pointing this out is in no way intended to imply that the financial risk taken by entrepreneurs is not real. Because I know it is. But they are not the only people who have to take a risk in order to earn a living. And they are not the only people who work very long hours, either. Lots of resource workers work very long days, for 14 days straight. But even those who are scheduled for 5 and 2, often get called out during the night, or on weekends, if there is a breakdown (which happens frequently). I’ve seen my hubby get called out as many as 3 times in one night (and because he was staff, he didn’t get paid any extra for doing that). And I've also seen him having to go into work on his scheduled days off (again with no extra pay).So trying to make the argument that entrepreneurs deserve some kind of “special” tax treatment simply because they take a financial risk, and work long hours, simply doesn’t wash with me. Because entrepreneurs do not have a monopoly on those two things.

There are many people, in many different professions, who work very long hours. Not just business people.

[Merry]

The fact that someone has an asset base or net worth that makes it worthwhile to manage their tax matters by using slightly more complicated means

If the system were less complicated, and more transparent, we wouldn't be having this kind of a discussion in the first place. Because, if it is as fair as you claim, people would be able to see that for themselves.

And a simpler, less complicated system, would also be a lot less expensive for those with a large asset base, or net worth. Because they wouldn't have to spend as much of their money on fancy accountants and tax planners.

So, whether you agree with me or not about the fairness of the current system, presumably you can see the value in a less complicated, and more transparent process.

Canada’s tax system is unnecessarily complex. Since it was first introduced in 1917, the Income Tax Act (ITA) has ballooned from 11 pages of general principles and regulations to 2,690 pages of regulations and commentary. The ITA includes provisions for every imaginable circumstance or transaction and is expected to serve a wide variety of purposes.

Today’s ITA is used in ways that go far beyond its original intent — which was to raise government revenue. Canada’s tax system is increasingly being used to influence taxpayers’ behaviour through hundreds of special tax credits for specific groups and purposes. Special credits for personal income taxes amounted to $130 billion in foregone tax revenue in 2011 — more than the entire amount collected in personal income taxes, according to the MacDonald-Laurier Institute. In other words, not only is Canada’s tax system complex, it’s also costly and — for many — unfair.

Canada’s tax system has become a patchwork of complicated and cumbersome measures. It contains numerous exceptions and credits, is burdened with red tape and is difficult for the average taxpayer and businessperson to understand. A complex tax system hurts Canadians and the economy on many levels by creating inefficiencies, discouraging investment and hindering competition, productivity and economic growth. This is why tax simplification is essential.

The benefits of tax simplification are crystal-clear: lower compliance costs for taxpayers, less paperwork for businesses and lower administrative costs for government. A simplified tax system also reduces the likelihood of aggressive tax planning, which translates into higher compliance rates. This means a stronger system with a more secure tax base and predictable revenue.

With major challenges on the horizon such as demographic pressures, deficits over the medium-term and restricted economic growth opportunities, the government will need to look for efficiencies and revenue-neutral or low-cost initiatives to manage Canada’s finances and economy. Taking concrete steps to address tax measures or policies that unnecessarily add complexity to the tax system is an obvious solution.

http://ipolitics.ca/2012/11/24/toward-a ... -tax-code/

[Merry]

finding one person to state they are isn't fact,

I didn't just "find one person" Veovis; I provided quotes from several different sources. All of whom say that the current system of small business taxation is often used by rich people in ways that were never originally intended.

[LANDM]

Although making the right choices, working hard, and being willing to take a bit of a risk are all necessities, there is also a certain element of luck to everything that happens in our lives. I have known entrepreneurs who did all those things you mention, but failed anyway through no fault of their own, when an unexpected "down" cycle suddenly hit the economy. And ditto for many ordinary workers, who suddenly and unexpectedly got laid off when the "down" cycle hit.

......So trying to make the argument that entrepreneurs deserve some kind of “special” tax treatment simply because they take a financial risk, and work long hours, simply doesn’t wash with me. Because entrepreneurs do not have a monopoly on those two things.

There are many people, in many different professions, who work very long hours. Not just business people.

Your belief in luck is fine......you could also say "gods will", or "fate"......but, saying they did all of the things mentioned and they failed anyways misses the "smart" part. Down cycles are seldom unexpected. If you wish to place your future in "luck", go at it. I place my future in my own hands and it has done me well, while taking large financial risks.

Next, I am not making the argument that entrepreneurs deserve "special" tax treatment. You are the one making the claim that they have such special treatment. I am making the claim that they have tax opportunities available to all. The fact that a homeless person on the street would have no use for a corporate tax structure is irrelevant. They have no use for RRSP or TFSA contribution allowances either. Who cares? Not everything applies to everyone.
The entrepreneurs that you claim get special treatment don't get a northern allowance benefit that their employees may get. So what?
Their business doesn't get a child tax benefit. Who cares? They don't have the circumstances that benefit from it.

Finally, this isn't about working long hours. The owner of the company may have the precise work scenario as his employees with the addition of being responsible for them and the business. I don't think you realize what that is like. I do.

Your suppositions are built on quicksand but I do realize that you don't see it and likely never will. It is easier to fabricate instances that fit your vision, regardless of whether they reflect illegal tax evasion or incorrect application of the tax code.

[Merry]

Down cycles are seldom unexpected.

I agree that sometimes you can see it coming, but not always. Nobody expected the "Great Recession" for example. And, while that is the most extreme example, I've lived long enough to see other unexpected down cycles from time to time. Back in the 80's when BC's natural resource industry was "in the toilet" lots of people lost their livelihood through no fault of their own. Some were employees, and some were entrepreneurs whose business serviced those industries. I don't think anybody, at the time, thought that down cycle would be so deep, or last so long. Many (including me) had to leave the Province altogether to find work. It was a very bad time economically for a resource based Province such as ours.

If you wish to place your future in "luck", go at it. I place my future in my own hands and it has done me well, while taking large financial risks.

If you re read what I wrote, you will see that I never suggested people should "place their future in luck". I merely pointed out that sometimes the "best laid plans of mice and men can go awry", despite making well thought out decisions etc. Because sometimes, circumstances change and things go wrong, through no fault of your own. And that applies to everyone, owners and employees alike.

If you've never had it happen to you, then I would say you've been very fortunate, because there are not many who can go through their entire lives without having some sort of bad luck at some point. But, just because you've been so fortunate, you shouldn't make the assumption that everyone who is not as fortunate are always the author of their own problems. Because that simply isn't true. Sometimes bad things happen to good people. Period.

I am not making the argument that entrepreneurs deserve "special" tax treatment.

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. 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.

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. 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.

I am making the claim that they have tax opportunities available to all.

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.

The fact that a homeless person on the street would have no use for a corporate tax structure is irrelevant. They have no use for RRSP or TFSA contribution allowances either. Who cares? Not everything applies to everyone.

While it is true that not everything applies to everyone, things like RRSPs and or TFSAs do apply to most (even entrepreneurs).

Their business doesn't get a child tax benefit.

But they do get the benefit of being able to income split with their spouse and kids.

The owner of the company may have the precise work scenario as his employees with the addition of being responsible for them and the business. I don't think you realize what that is like. I do.

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.

It is easier to fabricate instances that fit your vision, regardless of whether they reflect illegal tax evasion or incorrect application of the tax code.

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.

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.

[Static]

Merry, many saw the Great Recession coming. It wasn't rocket science.