Proposed Changes to the Taxation of Private Corporations

On July 18, 2017, the federal Minister of Finance, Bill Morneau, announced extensive proposed changes to the taxation of private corporations in Canada.  These changes likely will impact you, and will likely result in you having to pay significantly more in taxes starting in 2018.  For more information, please visit the following links:

  1. www.cpacanada.ca/en/connecting-and-news/news/professional-news/2017/july/finance-canada-consultation
  2. www.taxpayer.com/commentaries/bill-morneau-s-attack-on-the-middle-class
  3.  www.fin.gc.ca/activty/consult/tppc-pfsp-eng.asp

These changes were proposed to ensure the wealthiest of Canadians pay their fair share of taxes.  Unfortunately, the proposed changes impact ALL private corporations, not just those that are owned by the wealthiest of Canadians.  In fact, the majority of private corporations in Canada are owned by “middle-class” Canadians, the very group of Canadians that the Government promised to protect. 

We do not believe that these proposals are fair, and are counter-productive to the Canadian economy as a whole for the following reasons:

  1. The proposals are based on the unsupportable argument that an employee and a private corporation owner should be taxed the same.  We believe that a private corporation owner carries significant additional risks and responsibilities that an employee does not, hence warrants the current tax regime;
  2. The proposals argue that spouses who are not directly involved in the business do not share in the risks and rewards of the corporation;
  3. The proposed changes casts a tax net at the wealthiest of Canadians that is so wide that it is going to catch hundreds of thousands of Canadians in the middle-class, resulting in the largest tax increase in decades to the middle-class;
  4. The proposed changes take away an important incentive for people to take risk and to innovate in Canada;
  5. The “trickle-down” effect on the economy will be far in excess of the tax revenues generated;
  6. A 75-day consultation window, in the middle of summer, is not properly consulting with the Canadians affected, especially given the changes proposed are changing tax law that has been in place for over 40 years;
  7. The proposed changes are overly complex, thus resulting in significant tax uncertainty for all impacted.

We think that you, as a private corporation owner, should be aware of these proposals and how they may affect your business, your family, and your future.  It is a very good time to contact your Member of Parliament (Pamela Goldsmith - Jones - [email protected] or 604.913.2660) to express your concerns before the consultation period ends on October 2, 2017.

Some of these proposals are scheduled to come into law on January 1, 2018, which will likely impact your 2017 tax planning decisions.  As there may be significant amendments to the proposed legislation (or hopefully abandoned altogether depending on the response from Canadians during the consultation period), we do not recommend any action with regard to your business structure at this time.  However, we will be in touch with you after the consultation period closes and once it becomes clear as to the extent of the final proposed changes.