Author Topic: Canadian small business tax reform.  (Read 274 times)

K-ice

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Canadian small business tax reform.
« on: September 14, 2017, 08:04:00 PM »
Canadian small business tax reform.

So can some mustacians please weigh in on what they think about the tax reform?

"The government’s proposals, released in July, target three tax-planning methods that make use of private corporations to save on income taxes: sprinkling income among family members named as shareholders, growing an investment portfolio inside a corporation as “passive income,” and converting income into capital gains."

Like this article says I think there is a lot of misinformation.

http://nationalpost.com/news/politics/bill-morneau-pushes-back-on-misinformation-coming-out-about-proposed-tax-changes

I saw someone saying it will make their tax rate 70%. I just can't fathom the math behind that.


I feel like I understand point 1 quite well.
I think that "sprinkling" is bad but aren't there already measures in place to prevent you paying your eight year old $8000 a year?

If your spouse, or children, actually help with your business then it should pay them for their time.

I need more help understanding the current rules & changes for points 2 & 3.

I'm trying to learn more & open the discussion up to you to help.







CanuckStache

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Re: Canadian small business tax reform.
« Reply #1 on: September 14, 2017, 08:25:07 PM »
Yep - I'm one of the ones affected. And my accountant said it could definitely hit me with that 70% rate.

I don't do income splitting, but I do have passive investments. Why? Because I don't get CPP, RRSP, paternity leave, etc. I'm fine with that - I'd rather take an overall lower tax rate to self-insure.  It's my self-built pension plan. It's the cushion I need to get through the lean times. Despite 10 years in business, sometimes I still have to go months without paying myself so I can make sure my employees get paid. I'm not a wealthy 1%-er. I just finished my year end and I paid myself $70k last year.

My wife and I just had a baby, and so I rely on those savings to help fund a maternity / paternity leave.

If this change goes through, I know I will have to lay off at least two employees. That really, really, really sucks.

What's worse is the government said they only expect to generate another 250 million a year in revenue from this. That's a DROP in the bucket. That's settling with 25 Omar Khadr's. While the uber-rich and large corporations don't have anything to fear from this. And meantime Parliament just decided to vote themselves a raise last week. Must be nice.

While I don't mind paying a higher percentage in tax, this whole thing is so ill thought out it's pathetic. It's easy for the finance minister to pretend like he's falling on his sword here because he has a private corporation, when he's getting a fat pension and hundreds of thousands of dollars a year in salary via parliament.

Sisko

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Re: Canadian small business tax reform.
« Reply #2 on: September 22, 2017, 11:38:05 PM »
Yep - I'm one of the ones affected. And my accountant said it could definitely hit me with that 70% rate.
...
I just finished my year end and I paid myself $70k last year.
I'm in a similar situation, in the amount that I pay myself and the fact that I have passive investments in the business.

The thing that I'm wondering... I believe that the 73% tax rate often quoted is assuming that the person is in the highest personal marginal tax bracket (so roughly 50%). If you're only in the ~30% marginal tax bracket, wouldn't the passive investment tax end up being less for you?

Also I think the 73% number is assuming interest income? So capital gains tax or dividends would be less?

Really, it's too freaking complicated. But at 73%, I don't think I would bother with passive investing in the corporation. The problem is that if your investments do well they take most of your profits. But if your investments do poorly, you take the full loss. Since we're planning on FIREing and winding down business income, we would never have a chance to carry forward the corporation's investment loss. So the government takes away any upside but leaves you with all the downside risk. :(