Ottawa’s proposed small business tax changes leave reader “disgruntled”
Finance Minister Bill Morneau is spearheading a plan to alter Ottawa's tax rules for professional corporations
Last week we posted about Ottawa’s planned changes to the tax rules around professional corporations. Finance Minister Bill Morneau wants to close “loopholes” in the tax code that allow “income sprinkling”: the attribution of a company’s revenues to family members – who may not in fact work in the business. Also he wants to stop professionals from using their professional corporations as a place to stash investments unrelated to the business.
Here is a response from a reader:
This is literally robbery. They will force a business owner basically to declare all income/profit from the business as his salary. They do not allow for boom and bust scenarios. Suppose you have a great year, you pay yourself a modest salary. Business declines, you continue to pay yourself a modest salary even though the business isn’t as profitable. Yes, it is a holding vehicle of sorts but businesses don’t always have profitable years and they need to ‘save for a rainy day.’ Something governments are not aware of since they tax at will.
Editor’s Note: It’s not actually part of the Morneau plan (public hearings are still being held) to force any business owner to declare the business’s income as (personal income taxable) “salary.” It is clearly, however, an attempt to get businesses to pay more business tax on profits where they have previously been stashing profits into investment vehicles as if the company was an individual. Since the rules have not been made into legislation, and since “hearings” are ongoing, we will have to wait to see what the final legislation looks like.