As committed in Budget 2017, this paper provides details about tax planning strategies involving the use of private corporations and sets out proposed policy responses to close loopholes and bring greater fairness to the tax system. Stakeholders—including the affected business communities, provincial and territorial governments, tax advisors, commentators and other Canadians concerned about the fairness of Canada’s income tax system—are encouraged to share their views and ideas about the proposals to address the tax planning strategies discussed in this paper.
Written comments should be sent to: firstname.lastname@example.org
We raised taxes on the 1% so we can lower them on the middle class.
We created the Canada Child Benefit, which gives nine out of ten families more money each month to help them make ends meet.
And we are making historic investments in our communities that are creating jobs now, and leaving a better future for our kids.
That plan is working.
In the last year the Canadian economy has created over 300,000 jobs, and the large majority of these jobs have been in full-time positions.
Unemployment is down nationally, and many Canadians are more confident in their future.
But we know there is more work to do.
Middle-class Canadians need to know that when the economy grows, they’ll see the benefits—not just the wealthy.
Essential to that confidence is making sure everyone pays their fair share of taxes.
The Minister of Finance conducted a review of the tax system recently, and found worrying trends.
Since 2001 the number of Canadian-controlled private corporations has increased by 50%.
We suspect that at least part of this is a result of people incorporating for tax planning purposes.
That is what this consultation is all about.
In Canada, the small business tax rate is the lowest out of the G7 countries.
Our general corporate tax rate is 12 points lower than the United States.
This is to help businesses to invest in themselves, buy new equipment, find new customers and hire more people. Low business taxes not meant to give the wealthy a tax break.
The potential changes regarding private corporations will in no way impact this competitive tax advantage Canadians use to grow their business.
But for those who set up private corporations, we want to make sure that they are paying the same amount of income tax as a neighbour who earns the same amount working for a paycheck.
There are three very specific areas that we are focusing on in order to reach this goal.
The first is called sprinkling. It’s when you split up your income between yourself, your spouse and your adult children, so everyone ends up in a lower tax bracket.
The second is called passive income. That’s when you use a company like a personal savings account, keeping investments inside a corporation in order to shield them from personal income tax.
The third – and most complicated – involves converting dividends into capital gains, which again are taxed at a lower rate.
Now I don’t pretend to know all the ins and out of this. It is a very complicated subject, even for the experts.
I can tell you that all these strategies are legal. But that doesn’t mean that they are fair.
But like I said, we are listening.
Anyone who has concerns is encouraged to write to email@example.com and tell us about it.
We will be spending the rest of the summer hearing from Canadians on this issue, and we will be taking action in the coming months.
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