Photographer: Drew Coffman
“Finance Minister Bill Morneau is proposing to close loopholes that allow wealthy Canadians to avoid higher tax rates, largely by targeting people who incorporate themselves and then draw income from their businesses while paying lower corporate taxes,” wrote John Paul Tasker for CBC News on July 18, 2017.
Tasker continued, “There has been an eight-fold increase in the number of corporations in Canada since the 1970s, while the gap between personal tax and business tax rates has grown significantly. As of 2017, there is a 37.2 per cent gap, meaning income derived from a business faces a much lower tax burden.
Morneau wants to curtail so-called “income sprinkling,” a tax move that allows business owners — often professionals like doctors and lawyers — to distribute money to family members who earn less, allowing income to be taxed at a lower rate.
Morneau plans to impose a “reasonableness” test so this does not punish legitimate family businesses. That test will determine just how much work a family member actually does at a business, and if they can really lay claim to profits. Approximately 50,000 Canadian families will be affected by this change, Finance Canada estimates.
The measure is meant to level the playing field, and to avoid advantages business owners have over employees who earn money from a salary.
A business owner earning $220,000 a year can pay up to $35,000 less in taxes by using sprinkling tactics and distributing income to family members. The government will extend income splitting rules that currently apply to minors — colloquially called the “kiddie tax” — to adults in certain circumstances.”
Read the full article here.
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