Author Topic: Seymour Schulich blasts Morneau's Tax plan, Warns itís 'political suicide'  (Read 4251 times)

rb

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Maybe a clear tax based definition of what a small business is would be a good starting point.
That definition already exists. It's a business with less than 15 million in total capital and generates less than 500,000 in active business income.


Cigarbutt

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Using that definition and existing rules for incorporation in many sectors, a person with an employee status in substance can incorporate and have access to the tax advantages of a small business.
How to deal with that?
Make it more complicated after you incorporate?
Or deal with the problem upstream?

A "problem" now is that many "small businesses" exist mostly because of the intent to pay less taxes.



rb

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Using that definition and existing rules for incorporation in many sectors, a person with an employee status in substance can incorporate and have access to the tax advantages of a small business.
How to deal with that?
Make it more complicated after you incorporate?
Or deal with the problem upstream?

A "problem" now is that many "small businesses" exist mostly because of the intent to pay less taxes.
Well actually no. Under existing rules, what you describe would not fall under active business income but under personal service corporation which is taxed under a different regime. This is the technical part.

In reality though yes the rules were not respected and badly abused. As a result we do have corporations that exist only to take advantage of preferential taxes and they have also broken tax laws. The new rules are (were?) supposed to fix that. We'll see how this plays out though.

Cigarbutt

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So the problem would be that rules were not respected.
To resolve that, you need new rules?

So far, the "reform" contemplated had nothing to do with a better definition of existing rules or a strict application of existing rules.
BTW, if you think quantum physics may be a challenge, it may be relevant to read through (and understand) the tax documents relevant for a small business.

 


rb

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I did read and understand them. I have a tax consultancy business. And yes, these "new rules" don't really bring much new stuff since most of the issues they address were already covered by existing rules. So I'm pretty puzzled by what's going on right now on both sides: the government and business owners and conservatives bitching.

What's become clear is that there was wide-spread non-compliance with the existing rules. Something I was not aware of. Probably a combination of greedy business owners and unscrupulous tax advisors. One possible explanation on why the government is bringing in new rules is this: If the gov't would enforce existing rules they would do so by dispatching the CRA to deal with the offenders. Once CRA would start to look at your business it would go back years. Given the state of non compliance this would look very bad. you'd get headlines of Gov't war on business or Gov't war on doctors, etc. So instead they say ok, new rules: clean slate and stop breaking the old rules.

Cigarbutt

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Reasonable. Glad we could reach common grounds.
Are you incorporated?  ;)

rb

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Reasonable. Glad we could reach common grounds.
Are you incorporated?  ;)
Hahaha. Nope. The tax consultancy is not incorporated for a number of reasons.

Aberhound

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1. What is unfair is the pension monies which accrue tax free when the current proposal is to limit small business passive income additions to $50,000 per year without penal taxation. It is unfair to discriminate against one group will leaving the perks for another. Limit both or neither.

2. The income splitting is an attack on the family, an attack on women and an attack on immigrants. The whole logic of family law since the early 1970s is that lower income wives make indirect contribution to the higher income spouses (wives now are often the higher income earner but this was how it was years ago) and therefore are entitled to an equal share of the family assets earned mostly by the husband. Is CRA now saying that the indirect contribution to family members who are paid dividends are worthless? This is mostly an attack on women as they will get less dividends than they enjoy now after the change. They can thank the liberals for the pay cut.

Immigrant families often live in multi-generational households with two or three families living together (parents, sons, their wives and children) all of the adults of which earn dividends. Are the family contributions of those immigrant wives and adult children worthless?  Immigrant businesses often make far more money because they work in networks where social events are important for business success so the contribution of wives and adult children are invaluable. How will the CRA and Courts determine what dividends are reasonable? I can see the arguments that the CRA is discriminating against immigrant families and in actual practice the implementation of the policies will be constant and repeated pain inflicted by the CRA against immigrant families.

The liberals are committing political suicide. I have a friend who is Sikh who warned the BC Premier's right hand man that if they continued to break their promises to his group he would make sure the BC Liberal government lost power. My friend lobbied his community and caused the defeat of Fasbender and at least one other riding which was sufficient to defeat the BC Liberal government.

If the Conservatives are smart they will use this issue to capture the immigrant vote. The Liberals seem determined to destroy the family so this is the wedge to defeat them. Remember that it was the Liberals who reduced the age of consent to age 14. The Conservatives wisely increased the age of consent and allowed income splitting and these pro-family policies captured a large portion of the immigrant vote.  If it wasn't for the Conservatives insane policies on Crime they would still be in power and we wouldn't suffer through this nonsense. The Conservatives also wisely reduced the business tax rate below the US rates and simplified the filings which gradually improved our relative prosperity in Canada as compared to the US. Now the Liberals are going to reverse the trend and we will become the poor neighbours again. This will only get worse when Trump is able to reduce the corporate tax rate and to simplify the filings. Instead the Liberals should fix the problem by copying the UK which got rid of the small business rate and dropped the big business rate to 19%. Added complexity will greatly harm Canadian small business.

It is particularly ridiculous for the CRA to have rules to dictate what it is reasonable for business to do. If they do so they will put the Court in an impossible position. Traditionally there has been no test on what dividends are reasonable because of the business judgement rule where the Court will not attempt to say what business judgment is reasonable. The businessman is in a far better position to judge that himself.

Cigarbutt

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This specific post is not about the merits of the "reform".
It's about content versus container.

Here's a link. The Toronto Sun may not be a model but used only for illustrative purposes.
http://www.torontosun.com/2017/10/20/for-starters-morneau-needs-to-say-hes-sorry

Respectfully submitted and notwithstanding any political inclination, it would be difficult to devise a strategy and plan more miserably.