CPA Canada has submitted its views and recommendations in response to the Government of Canada’s consultations on tax planning using private corporations. The submission, which can be read here, is based on their initial analysis of the July 18 proposals and consultations with members and other stakeholders. CPA Canada believes the proposals would have far-reaching impacts that extend beyond Canada’s top income-earners, and would adversely affect many middle-class taxpayers. If implemented, the proposals would create complexity and raise the cost of doing business in Canada, creating barriers to business investment and job creation, and diminishing competitiveness.
Some of the recommendations include:
RECOMMENDATION: CPA Canada recommends the government provide data and analysis regarding the use of income sprinkling through private corporations to ensure the issues are well understood by stakeholders and the best solutions can be developed.
CONVERTING INCOME INTO CAPITAL GAINS
RECOMMENDATION: CPA Canada recommends that the federal government:
- Ensure neutrality and simplicity by reviewing the proposals that aim to prevent the inappropriate conversion of income to capital gains to ensure they would not lead to unexpected, uncertain, inappropriate and onerous tax results (e.g., double taxation on death).
- Ensure procedural fairness by considering appropriate transitional periods and grandfathering rules to ensure the rules do not apply retroactively or retrospectively.
HOLDING PASSIVE INVESTMENTS INSIDE A PRIVATE CORPORATION
RECOMMENDATION: CPA Canada recommends that the federal government take steps to minimize complexity as follows:
- If the proposals on income sprinkling and the conversion of income into capital gains are adopted, conduct a more detailed review on whether the passive income proposals are in fact needed when the cost and complications created by those proposals are considered. If passive income rules are deemed necessary:
- If passive income rules are deemed necessary:
- Undertake further study and analysis to define “small business” for purposes of the passive investment rule (e.g., annual business income under $150,000) and promote simplicity by including a de minimis rule to exclude small businesses from the application of any new rules in this area promote certainty by establishing a safe harbour for companies that maintain a reasonable portion of their assets in passive investments relative to active business assets that are incidental to or necessary for the business, for example, by using a variation of the current definition of a small business corporation (e.g., a straightforward 80 per cent test)
- Promote certainty by establishing a safe harbour for companies that maintain a reasonable portion of their assets in passive investments relative to active business assets that are incidental to or necessary for the business, for example, by using a variation of the current definition of a small business corporation (e.g., a straightforward 80 per cent test)
- Promote procedural fairness by providing a reasonable transitional period (e.g., two years) and comprehensive transitional rules for individuals and their companies to plan for the change in this tax regime.
In conclusion, the submission states that instead of layering on ever more complex tax rules, CPA Canada recommends a comprehensive review of the tax system. CPA Canada has recommended such a review for many years.
Thanks to the many Alberta CPAs who contributed their thoughts and feedback on this issue. Your efforts have helped ensure the profession’s voice is heard on this issue.