The Government of Canada recently announced some of the most sweeping changes to business tax laws seen in 50 years.  

The proposed changes target common tax management practices available to small businesses such as sharing income with family members, saving passive investment income in a corporation, and converting a corporation’s income into capital gains rather than dividends. 

The government is framing these practices as tax evasion or loopholes. They suggested some - specifically the "very wealthy or the highest income earners" - are using private corporation to avoid "paying their fair share" of taxes, or gain a tax advantage. 

The Department of Finance announced consultation starting on July 18, in the middle of summer, and lasting for 75 days until Oct 2, 2017. 

We believe the consultation period needs to be extended,  and that these changes will punish legitimate small businesses.  

Please take our 4 question survey to tell us what you think.

* Do you think the Calgary Chamber should request the government extend the consultation period?

* Sprinkling income using private corporations

The Government is seeking input on proposed new rules to distinguish “income sprinkling” from reasonable compensation for family members.

They believe "sprinkling income" is used to reduce income taxes, by causing income that would otherwise be realized by a high-income individual facing a higher personal income tax rate to instead be realized (e.g., via dividends or capital gains) by family members who are subject to lower personal tax rates or who may not be taxable at all.

The government is looking at new rules that would help to determine whether compensation is reasonable, based on the family member's contribution of value and financial resources to the private corporation.

The Government is also asking for feedback on whether, and if so how, it would be possible to accommodate genuine inter-generational business transfers in the Income Tax Act while still protecting the fairness of the tax system.

Would it impact your business if the government made changes to “income sprinkling”?

* Holding a passive investment portfolio inside a private corporation,

The government believes that holding a passive investment portfolio inside a private corporation, may be financially advantageous for owners of private corporations compared to other investors.

This assumption is mainly due to the fact that corporate income tax rates, which are generally much lower than personal rates, facilitate the accumulation of earnings that can be invested in a passive portfolio.

The Government is seeking input on possible approaches to neutralize the tax-assisted financial advantages of investing passively through a private corporation.

Will your business be impacted if the government makes changes to holding a passive investment?

* Converting a private corporation's regular income into capital gains

The government believes business are unfairly converting their regular income into capital gains, which can reduce income taxes by taking advantage of the lower tax rates on capital gains.

Income is normally paid out of a private corporation in the form of salary or dividends to the principals, who are taxed at the recipient's personal income tax rate (subject to a tax credit for dividends reflecting the corporate tax presumed to have been paid). In contrast, only one-half of capital gains are included in income, resulting in a significantly lower tax rate on income that is converted from dividends to capital gains.

The Government is proposing changes to tax rules to prevent the surplus income of a private corporation from being converted to a lower-taxed capital gain, and removed from the corporation.

Would it impact your business if the government makes changes to converting income to capital gains?

This survey is anonymous, however if you would like to be kept up to date with the advocacy efforts your Chamber is doing, please provide your contact information below.

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