lpoutine,
Mike K. has just posted a new topic entitled "Trudeau's small business tax changes" in forum "Victoria Politics".
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Trudeau's proposed changes to Canada's tax laws as they pertain to private corporations (i.e. small businesses), I feel, are a grab at revenues from a segment of the population that the Liberals believe is not powerful enough to affect election outcomes.
Calling small business owners tax evaders or individuals operating on a different plain than other Canadians, is not only shameful, but it's downright derogatory when the so-called evaders are utilizing tax laws as created by the very government that now considers them to be "unfair."
What the changes will translate to is an erosion of safety nets for small businesses, the erosion of investment capital a business has at the ready to expand, hire more employees, or weather a downturn. And they will also make operating a small business an even riskier undertaking.
Remember, this is the government that cut the Tax Free Savings Accounts by half, calling the investment of already taxed monies unfair. Now they want to tell small business owners, as the below G&M article segment posits, that a business putting away capital to sustain its future operations is ...offensive.
Of the tree changes, the one pasted below is the one that will be a hard pill to swallow for business owners. The income sprinkling change (allowing a spouse in a lower tax bracket to share some of a spouses earnings as far as taxes are concerned) will affect a lot of doctors who rely on stay-at-home spouses. The third change, related to capital gains, I don't understand enough as its more complex, but it's not the biggest issue, I don't think.
Passive income - https://beta.theglobeandmail.com/globe-investor/personal-finance/taxes/proposed-tax-changes-will-shake-the-small-business-world/article35754872/?ref=http://www.theglobeandmail.com& (https://beta.theglobeandmail.com/globe-investor/personal-finance/taxes/proposed-tax-changes-will-shake-the-small-business-world/article35754872/?ref=http://www.theglobeandmail.com&)
When a corporation generates income, it's eligible for a pretty attractive rate of tax (about 15 per cent, but it varies by province) on the first $500,000 (federally) of active business income. If a business owner doesn't need all of his earnings to support his lifestyle, it's common to leave the rest in the corporation to invest – perhaps in a portfolio earning passive income. For example, if you earn $100 in active business income and pay $15 of that to the taxman, you'd have $85 left to invest in the corporation. If you had earned that business income personally, and you're in the highest tax bracket (a marginal tax rate of about 50 per cent), you'd be left with just $50 to invest. So, there's an advantage to earning business income in a corporation if you earn enough that you won't spend it all.
The government thinks this is unfair, notwithstanding that you'll actually pay more tax over all if you invest inside the corporation and then eventually pay that income out to yourself as dividends later. That's right, corporate tax rates on passive income are high even under today's rules – don't let the government tell you otherwise. So, the only meaningful benefit is the larger amount to invest up front as noted in my example above. It appears that the government believes that having more money working for you today, if you have a corporation, is offensive (so much for helping Canadians save for the future).
The government is exploring how to limit the perceived benefit of leaving excess earnings inside a corporation to grow in a passive portfolio. Mr. Morneau is looking for comments from Canadians on a couple of primary options: (1) implementing a refundable tax that would apply to ineligible investments (the tax would be refunded once the capital is either paid out to you as taxable dividends personally, or is used in the active business), or (2) change the current refundable tax system on annual passive income so that the tax is no longer refundable if the investments were made with excess business income taxed at low rates. How does all of this simplify our tax system?
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The topic can be found here:
http://vibrantvictoria.ca/forum/index.php?/topic/6296-trudeaus-small-business-tax-changes/?view=getnewpost
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