In mid-July, the liberal government announced a three pronged plan to increase "fairness" between small business owners and salaried employees. The tax reform is aimed at incorporated small business "loopholes", with the intention to increase the tax load on the rich while supporting the middle class.
Restrict income sprinkling between family members
Increase taxation on “passive” investments within the business
Restrict the ability for businesses to convert dividends into capital gains
The plan is very complex in nature, and lacks specific solutions
In most instances, a test of “reasonableness” will be required
It will also be costly to implement, given that each individual business is a unique case and must be assessed on income sprinkling and estate taxes by “reasonableness”
A lack of information available to the public
There is a high amount of misinformation out in the public
A broad range of small business types will be affected
Although initially aimed at the rich, the plan now affects a greater number of middle class business owners instead
The fundamental differences between small business owners and salaried employees
These two “classes” share different benefits and provisions, and as a result, should not be equated through strictly monetary means
It falls back on the Liberal campaign promise
A majority of incorporated small business owners fall into middle class
The Side Effects
Making it harder to share income with family who actively participate in the business
Limiting a small business owner’s ability to invest and reduce financial risk
Major problems associated with passing down a family business in the future
Reduced incentive for entrepreneurs to incorporate or create businesses in Canada
Finance Minister Bill Morneau claims that they will consider unintended effects into their plan after the consultation period, and will make changes accordingly.
With the federal government cracking down on tax exemptions for small business owners, it's now a better time than ever to invest in a Health Spending Account (HSA). At Olympia, we provide cost-effective HSA's specifically for incorporated businesses like you. In a nutshell, they turn your after-tax personal expenses into before-tax business expenses.