In their second component of ‘making the tax system fair’ in connection with small business, they were talking about how small business corporations could unfairly have passive income taxed in their corporations, and thus have a leg up on the ‘ordinary wage earner’. This was an inflammatory statement, and not the whole truth, as small businesses would pay close to 50% tax on such income already, a tax rate of around 75% was suggested, but no actual legislation on it was proposed as yet.
As you can read it the Finance Canada press release below, they are backtracking on this ‘to be proposed provision’, in that any past investments and the income earned on them are protected, and in any case, there will be a $50,000 investment income on which this yet to be defined ‘surtax’ will not be levied.
Feel free to call me for more information.
October 18, 2017 – Hampton, NB – Department of Finance Canada
When you have an economy that works for the middle class, you have a country that works for everyone. As the Government of Canada lowers the federal small business tax rate to 9 per cent, it is committed to ensuring that Canada’s competitive corporate income tax rates are not being used by high-income individuals to gain a personal tax advantage.
Finance Minister Bill Morneau, Minister of Status of Women Maryam Monsef, and member of Parliament for Fundy Royal Alaina Lockhart today announced the next steps in the Government’s plan to move forward on changes to the tax system that will ensure that Canadian-controlled private corporation (CCPC) status is not used to reduce personal income tax obligations for high-income earners rather than supporting small businesses.
Minister Morneau outlined today the Government’s intention to move forward with measures to limit the tax deferral opportunities related to passive investments, while providing business owners with more flexibility to build a cushion of savings for business purposes – for example to deal with a possible downturn or finance a future expansion – as well as to deal with personal circumstances, such as for parental leave, sick days or retirement. The intent of the new rules will be to target high-income individuals who can benefit under current rules from an unlimited, personal, tax-preferred savings account via their corporation, far beyond the pension, RRSP and TFSA limits available to other Canadians. This is inherently unfair, and the Government is committed to fixing it, while it reflects on the feedback received from Canadians during the consultation period.
In further developing these measures, the Government will ensure that:
- All past investments and the income earned from those investments will be protected;
- Businesses can continue to save for contingencies or future investments in growth;
- A $50,000 threshold on passive income in a year (equivalent to $1 million in savings, based on a nominal 5-per-cent rate of return) – an amount that is exceeded by only about 3 per cent of corporations – is available to provide more flexibility for business owners to hold savings for multiple purposes, including savings that can later be used for personal benefits such as sick-leave, maternity or parental leave, or retirement; and
- Incentives are in place so that Canada’s venture capital and angel investors can continue to invest in the next generation of Canadian innovation.
From the launch of consultations on July 18, Canadians have engaged in an important discussion on proposed measures to address tax planning using private corporations. Through town halls and roundtables held from Vancouver to St. John’s, Ministers and Members of Parliament heard and carefully considered the views and perspectives of small business owners, farmers, fishers, professionals and experts. This week, the Government is announcing further steps towards fairness for the middle class that will take into account feedback received from Canadians during the consultation period. The Government’s approach will ensure the measures are focused on a small number of high-income individuals who get the biggest advantage from existing rules.