Changes moving forward even as new Senate report recommends scrapping or delaying changes
December 13, 2017 – The Canadian Federation of Independent Business (CFIB) is disappointed with the government’s last-minute release of new income sprinkling rules for private corporations, and is calling on Ottawa to delay implementation until January 1, 2019.
“It is extremely concerning to see the federal government drop this lump of coal during the busiest season for hundreds of thousands of firms and only days before all small business owners are expected to implement the new rules. This seems the very opposite of tax fairness,” said Dan Kelly, CFIB president. “How our government expects small businesses to understand the new rules and make any needed changes to their corporate structures in two and a half weeks is beyond me.”
In October, CFIB welcomed several of the government’s adjustments to its suite of proposed tax changes, including a new commitment to release the draft legislative proposals for income sprinkling “later this fall”.
“After signs the government was starting to listen to the voices of entrepreneurs, this is another blow,” Kelly said. “It is particularly worrisome that these changes have not been legislated or studied to ensure there are no unintended consequences.”
Based on an initial review, CFIB recognizes government has attempted improvements by excluding some family businesses from the new rules, which includes spouses of business owners over age 65.
“While the bright-line test may offer relief to some families, the Canada Revenue Agency will still need to determine whether a firm qualifies for the exemption,” Kelly added. “We remain concerned that the new income sprinkling provisions won’t take into account many of the formal and informal ways family members participate in the business.
“Business owners will be worried that they could see their red tape burden increase significantly in order to prove they qualify for one of the exemptions or can meet the ‘meaningful contribution’ test.”
CFIB will continue to review the revised proposals and seek input from tax professionals.
CFIB also notes the Senate Finance Committee report, released earlier today, which states that the “income sprinkling proposal will be complicated to apply, require significant paperwork, and rely on the subjective determination of tax auditors, inevitably leading to inconsistency and litigation.”
The Senate has recommended the entire package of changes be dropped and replaced with an independent review, noting that if government does go ahead, it should delay implementation to 2019.
“It is deeply worrisome that the CRA—the same agency that thought it was a good idea to tax the dishwasher’s discount on his pizza lunch—will now be asked to determine whether the contributions of a mom and pop shop warrant the salary and dividends paid to mom and pop each year,” Kelly concluded.
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CFIB is Canada’s largest association of small and medium-sized businesses with 109,000 members across every sector and region. Learn more at cfib.ca.