Proposed Corporate Tax Changes

The Issue
On July 18, 2017 Finance Canada launched a consultation on how “tax-planning strategies involving corporations are being used to gain unfair tax advantages". The document contains proposed policies to close these “loopholes".  However, this is more than just a change to close loopholes, it is deemed to be the most radical tax overhaul there has been in 50 years. As a result, significant concerns surfaced amongst businesses across Canada.

The Government focused on three key tax practices that they feel are being used to gain unfair tax advantages:

1. Income Sprinkling: changes are aimed to eliminate business owners from transferring income to one or multiple members of the family who are taxed at a lower rate or who aren’t taxable at all.
2. Passive Investment Portfolio: changes are aimed to prevent individuals from gaining tax benefits by investing income within a corporation.
3. Capital Gains: changes are aimed to curb private corporations converting income to capital gains and paying a lower tax rate compared to the higher tax that they would pay it if was income.

If your business is incorporated, then you could be facing a larger tax bill and big compliance costs from the government’s new proposals to change the way corporations are taxed.

Small and medium-sized businesses (SMEs) are the engine of the Canadian economy – estimates range from 85 to 90% of all businesses in Canada are SMEs. The chamber network across Canada is using its collective voice on this issue; your voice as a business person needs to be heard as part of this initiative.

Unfortunately on October 2, 2017 the consultation period closed, but that does not mean our advocacy is over. Read the Canadian Chamber of Commerce press release of October 3, 2017.

As a result of our efforts, we have made a difference and we will continue to work on behalf of our members!

Our original key messages to Government were to:

  • Rethink its proposed tax changes to ensure that we #ProtectGrowth of small businesses across Canada, and continue to encourage entrepreneurship.
  • Launch meaningful consultations with the business community to review tax policy - without unfairly targeting independent businesses.
  • Consider a comprehensive review of the Canadian tax system with a view toward fairness and simplification for all taxpayers, an increasing competitiveness for all businesses.

In addition the Canadian Chamber of Commerce and our 400+ chamber delegates passed a policy resolution at the September Canadian Chamber policy conference asking Government to stop the harmful tax changes on private corporations. As a result the Chamber network is asking for the federal government to establish a royal commission to undertake a comprehensive review of taxing statutes guided by the principles of simplification and modernization, as well as having the goal of reducing compliance costs to make Canada a competitive tax regime once again. We also wish to see the Government establish a standing committee with active representation from the SME community to support the commission by continuously monitoring changes and publicly reporting progress at least annually. View the info graphic on the difference between a comprehensive review and a royal commission here.

During the 75-day consultation period, the government received over 21,000 submissions. To put this in perspective, it would take a full-time staffer at the Department of Finance, spending a mere ten minutes reviewing each submission (and many of them are 50 pages or more!), 465 workdays to get through them all.

As a result a number of announcements have been made during small business week by Finance Canada with regards to business taxation. We anticipate that through these announcements, they are looking to address the three primary areas where issues have been raised in relation to income sprinkling, passive investments and capital gains. Through #SBW2017, these are the announcements that have been made so far:
October 16, 2017: Government Moves to Reduce Small Business Tax Rate and Support Fairness for the Middle Class 
October 17, 2017: Government Thanks Canadians for Helping Get Tax Fairness Right 
October 18, 2017: Targeted Tax Fairness Measures Will Protect Middle Class Small Business Owners 
October 19, 2017: Targeted Tax Fairness Measures Will Protect Small Business Owners Including Farmers and Fishers 
December 13, 2017: Government Simplifies Measures to Restrict Income Sprinkling

As a Chamber, we remain cautious in terms of the details and implementation. The government’s final fulfillment of its electoral promise on lowering the small business tax rate will allow businesses to free up more capital to reinvest and create jobs. Albeit the tax reduction result in actual dollars for business is minimal, it is still a move in the right direction and moves us closer to steering us to a more competitive tax system, if applied properly. You can view our October 16, 2017 press release and also read our recent post of October 19, 2017.

The Canadian Chamber of Commerce issued an update on November 29, 2017, highlighting the changes key messages and our positions to the changes made. For detailed information, please click here

On December 13, 2017 the Minister of Finance, Bill Morneau, announced changes to rules for income sprinkling to simplify the "reasonable test" for family members. Click here to see the press release.

We were pleased with the release of the Standing Senate Committee on National Finance report Fair, Simple, Competitive Taxation: A Way Forward For Canada. The recommendations align with our advocacy efforts in calling for an independent comprehensive review of our tax system "to ensure that it is not overly complex, maintains our economic competitiveness and is fair to all Canadians". In March of 2018 the Office of the Parliamentary Budget Officer released a report on income sprinkling noting that they were "unable to clearly identify the indivuduals who will be subject to the tax on split income (TOSI)". 

The government needs to consider a comprehensive review of the Canadian tax system that ensures fairness and simplification for all taxpayers and increasing competitiveness for all businesses. Now... that would be #TaxFairness!

What you can do...

PETITION: We've launched a petition that we encourage you to sign and share.

WRITE: All provincial and territorial chambers sent a letter to their premier on behalf of the business communities within their regions asking that the tax proposals be a discussion point on the agenda of the meeting with Prime Minister Trudeau. We also request you send a message to your MP. Government needs to know that this tax reform will harm businesses of all sizes. Don’t know where to send the message to your Member of Parliament? Look up their address using your postal code here. We’ve also included a template here that can be used to send a letter to your MP (password is chamber2017). We also encourage to you write to Finance Minister Bill Morneau.

CALL: Finance Minister Bill Morneau directly at his office in Ottawa, or at his constituency. 
House of Commons (Ottawa)
Telephone: 613-992-1377
Fax: 613-992-1383
Constituency Office (Toronto)
Telephone: 416-972-9749
Fax: 416-972-9891

SHARE STORIES: We want your stories submitted by video and ask that you share them via [email protected] and [email protected] . Not sure what kind of message to use, check this out. Videos do not have to be slick and they don't have to be long - in fact 30-60 seconds is best. Videos should tell the story of how proposed changes will impact your business.

GO SOCIAL: @ProtectGrowth. If you are on social media, the Canadian Chamber has just created a new Twitter handle for this initiative - @ProtectGrowth. We encourage you to add this handle to those that you follow and include the handle in any tweeting you do on this tax issue. Don't forget @mhdchamber @albertachambers @Perrin Beatty @CdnChamberofCommerce and the hashtags #SMEisMidClass #ProtectGrowth #TaxFairness #iheartsmallbiz. Want to communicate directly with MP Bill Morneau and PM Justin Trudeau on social media? Use these links: Twitter: @Bill_Morneau @JustinTrudeau; Facebook: @morneau.bill @JustinPJTrudeau

Read the Canadian Chamber of Commerce policy submission to Finance Canada on the proposed tax changes outlining the problems and recommended solutions
Click here for information from the Canadian Chamber of Commerce
Click here to view our press release
Click here to view our Business Beat article on Proposed Corporate Tax Changes
Read the summary of the proposed tax changes put together by MNP
View the summary and presentation on Proposed Tax Changes for Private Corporations by JMH & Co
Read the article from the Canadian Chamber highlighting how business associations have united to oppose the proposed tax reforms as well as the press release of September 27, 2017 and letter from September 26 regarding the growing coalition. Read the letter from February 13, 2018 regarding the Coalition for Small Business Tax Fairness recommendations to government regarding income splitting and passive investment income. Another letter was sent to Minister Morneau on March 26, 2018 asking for an economic impact assessment of the package of proposed changes and a delay in the implementation of any tax changes until this assessment is complete.
Read the offer from the Canadian Chamber of Commerce to help host consultations for the government with business owners across the nation
Click here for an update from Alberta Chamber of Commerce
Click here for the Canadian Chamber of Commerce November 2017 Protect Growth update
Click here for the op-ed from Alberta Chambers of Commerce President & CEO, Ken Kobly
View Start Up Canada’s 5 ways to share your voice on Tax Reforms

Contact your accountant: They are the experts. If you don’t have an accountant, contact us and we can provide you a list of member accounting firms