Finance Minister Bill Morneau, House of Commons Finance Committee chair Wayne Easter
Changes to the tax system proposed by the Liberal government on July 18 are expected to be hotly debated when Parliament resumes sitting this week.
As reported by the CBC, the proposed changes include:
- Eliminating income sprinkling, which allows incorporated small businesses to shift income to family members who don't necessarily work for them.
- Eliminating the ability to convert a corporation's earnings into capital gains, which are taxed at a lower rate.
- Reducing the use of private corporations to make passive investments in stocks and real estate.
The Toronto Star reports, "Taken together, the package could save Ottawa hundreds of millions of dollars annually."
Halifax-based Canadian Centre for Policy Alternatives economist Lars Osberg says, "What these measures are designed to do and do do, is tax very aggressive tax avoidance at the top of the income distribution."
University of Ottawa School of Epidemiology professor Michael Wolfson has written, "For the bottom 50 per cent of income-tax filers in 2011 – those with incomes under $51,600 – well under 10 per cent had a non-trivial interest in a private company. But for the top 1 per cent with incomes over $163,300, more than 50 per cent had a significant interest in a private company – and for the top 0.01 per cent with incomes over $2.3-million, this figure jumps to almost 80 per cent."
But the Canadian Federation of Independent Business says it "will continue to fight for you and urge the federal government to take these unfair proposals off the table." Conservative finance critic Pierre Poilievre says, "The Conservative caucus will begin deploying every parliamentary tool possible to fight this." And multi-millionaire Conrad Black says, "[The proposed changes] constitute a violent assault on small business, the self-employed, private companies, and tax-paying, high-income people such as lawyers, as well as on financial continuity in families."
Osberg has responded, "The people who will benefit from this campaign of fear and disinformation are the people at the top. ...To say this is going to hit the Ma and Pa small business is just not true."
We can also expect that both Liberal and Conservative Members of Parliament will oppose the end to 'income sprinkling'.
The CBC reports, "Nearly one-third of Prime Minister Justin Trudeau's cabinet — including Trudeau himself — own or have recently owned private corporations. Overall, one in four MPs, or 26 per cent of the House of Commons, own or have a significant interest in one or more private corporations, from farms and restaurants to holding companies with investment portfolios. The highest rate of private corporation ownership was in the Conservative Party at 30.6 per cent, followed closely by the Liberal caucus where 30.2 per cent of MPs reported owning a corporation."
Just last week, The Globe and Mail reported, "The Liberal chair of the Commons finance committee is rebuking his own government's rollout of proposed tax changes, stating that it was a mistake to portray small-business owners as tax cheats. Liberal MP Wayne Easter said Ottawa's midsummer announcement caught farmers and other business owners off-guard and triggered an unprecedented backlash from his constituents."
Easter says, "We will see whether the government needs to reconsider, to reformulize, to restructure, whatever. That's what consultations are supposed to be about."
NDP finance critic Alexandre Boulerice cautions that the outrage aimed at these proposed tax changes is diverting attention from the Trudeau government's inaction on bigger taxation issues - tax havens, questionable deals for tax cheats, and their broken promise to close stock option tax loopholes for CEOs.
Boulerice says, “What is more interesting is what is not on the table right now. ...Mr. Morneau is coming from Bay Street. Those CEOs cashing in millions of dollars because of the stock loophole are his friends. Maybe he doesn’t want to hurt them.”
The federal government's consultation - via e-mails to email@example.com - ends on Monday October 2. The law firm DLA Piper says, "Notwithstanding the consultation period, it is expected that all proposals other than those with respect to passive investment income will be in force in 2018."