Federal Finance Minister Bill Morneau says income-tax reforms are needed because small business owners have an unfair advantage that could create two classes of Canadians for tax rates and retirement income.
He said the current system means business owners who incorporate their companies pay lower taxes while a second class of citizens ends up with a higher tax bill.
Proposed changes introduced in July would do away with 91裸聊视频渋nappropriate91裸聊视频� tax planning methods and deal with unintended consequences benefiting the 91裸聊视频減rivileged few91裸聊视频� whose numbers have grown significantly, Morneau said on Tuesday.
91裸聊视频淲e91裸聊视频檝e had a 300-per-cent increase in the incorporation of professionals in the last 15 years,91裸聊视频� Morneau told reporters after meeting with small business owners in Vancouver as part of cross-Canada consultations.
Small business owners in Canada pay the lowest income tax of all G7 countries and that provides investment opportunities to fuel job creation, but loopholes in the current tax system aren91裸聊视频檛 sustainable, Morneau said.
Incentives such as 91裸聊视频渋ncome sprinkling91裸聊视频� unfairly allow business owners to reduce taxes by shifting some of their earnings to family members who don91裸聊视频檛 have to work in the company, he said.
91裸聊视频淣ow we have a situation where a single woman who has two children, aged 12 and 14, and has the same amount of income as a married woman who has children who are 19 and 20 can find herself in a higher tax rate. So we see no reason why that should be so.91裸聊视频�
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But entrepreneurs say current incentives allow them to take on the risks of opening their own companies and, unlike salaried and public-sector employees, they don91裸聊视频檛 have a guaranteed pension or employment insurance protection.
Morneau said so-called passive investment income rules that allow a small business to build up a fund are unfair because that91裸聊视频檚 being used as a retirement-planning vehicle to defer tax on significant amounts of cash while others must abide by the limits of registered retired savings plans.
91裸聊视频淚f small businesses want to leave money in their business to potentially invest in the future of their business we understand and encourage that,91裸聊视频� he said. 91裸聊视频淲e just want to ensure that there91裸聊视频檚 no situation where they have a much, much better retirement income as a result of tax planning not available to other Canadians.91裸聊视频�
Morneau also said he91裸聊视频檚 against small businesses converting regular income into capital gains and paying half the tax rate, so that provision would also be changed.
The consultation period on the tax changes will end on Oct. 2.
Conservative finance critic Pierre Poilievre called on Morneau to back down on the policy reforms.
91裸聊视频淧rime Justin Trudeau and Finance Minister Bill Morneau are creating two classes of taxpayers,91裸聊视频� he said in Ottawa.
91裸聊视频淲hat minister Morneau is proposing is not solving a tax avoidance problem, it91裸聊视频檚 avoiding a revenue shortfall problem. Minister Morneau has spent the cupboard bare and he91裸聊视频檚 now looking to raise taxes on small businesses to pay for it.91裸聊视频�
Poilievre said Morneau has not explained a planned reasonableness test to ensure small businesses are legitimately claiming the work of family members, and companies would be forced to spend time and money explaining themselves to bureaucrats.
91裸聊视频淔amily members regularly contribute to small businesses, to family farms and to other enterprises, and there91裸聊视频檚 nothing wrong with them being appropriately compensated for that work.91裸聊视频�
However, Poilievre could not explain why professionals including doctors would need such an advantage, saying only that he doesn91裸聊视频檛 accept the government91裸聊视频檚 characterization of passive investment.
Doctors have been vehemently opposed to the proposed changes, and Morneau noted they negotiate agreements with provinces.
91裸聊视频淢y response is the tax code is not the way we should be deciding on how to compensate people,91裸聊视频� Morneau said.
Camille Bains, The Canadian Press
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