The government chose on July 17, 2017, in the midst of the summer doldrums,
to launch its strategic ballistic missile of tax proposals and draft
legislation on the taxation of private corporations and their shareholders.
We were forewarned in the February 2017 Budget to take cover as the
government pronounced that it intended to target private corporations and
their shareholders who it says unfairly use tax planning to lower their tax
And with that, we now have proposals which contain what could be the most
significant changes to tax policy in over 40 years and which have rocked
the tax-planning community as it digests and come to grips with the
potential impact of these measures and, with other stakeholders, prepares
to offer their rejoinder in a too-short consultation process (only 75 days)
that ends on October 2, 2017.
No doubt, there will be a flurry of activity this month and increased media
attention. The Society of Trust and Estate Practitioners (STEP) quickly
convened a one-day symposium on August 17, 2017, to discuss and form
conclusions on the proposals, and the Canadian Tax Foundation is slated to
do so on September 25, 2017.
The consultation paper “Tax Planning Using Private Corporations” and draft
legislation focus on three main issues that the government says can result
in “high income individuals gaining tax advantages that are not available
to most Canadians”: sprinkling income using private corporations to lower
tax-rate family members; holding passive investments inside a private
corporation to gain the advantage of lower rates than personal rates
facilitating the accumulation of earnings; and converting a private
corporation’s regular income into capital gains to take advantage of the
lower rate on capital gains.
As they say, it is not what you do but how you do it that is important. The
emerging consensus is that these measures have broad and negative impact on
business owners, including small business owners who employ most Canadians,
generate most of the new jobs, and who have organized their affairs over
the last several decades based and relying on existing tax policy and
accepted tax planning in order to have a sustainable business.
What is missing to date are objective, comprehensive impact studies of who
will be affected, and how, if these proposals are carried through not only
at the micro level of the individual business owner, but also at the macro
level of the Canadian economy as a whole.
No doubt there are a number of serious fundamental questions that need to
be posed, reflected on, debated, and responded to with regard to existing
tax rules and planning, and whether they appropriately achieve their
objectives to ensure our taxation system works well, and that developed and
thoughtful tax policy underpins it. However, measures that undermine
Canadian entrepreneurialism and small business owners just when it seems
the Canadian economy is starting to get on a roll again and which could
kill the proverbial goose that lays the golden egg, would be ill-conceived.
On July 1, 2017, Canadians celebrated with pride and satisfaction our 150th
birthday, and generally relative to many other countries, our national
motto of “peace, order, and good government” has been lived up to. Let us
hope that as tax changes are enacted, in whatever final form, our national
motto will infuse the discussion and the debate, and that we do our best to
continue to live up to it.
Margaret O’Sullivan is the principal of the Toronto-based trusts and estates law firm
O’Sullivan Estate Lawyers. She practices exclusively in the areas of estate planning, estate
litigation, advising executors, trustees and beneficiaries, and
administration of trusts and estates. This article originally appeared
O’Sullivan Estate Lawyers blog. Reprinted with permission.
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