Federal Finance Minister Morneau concluded his public consultation on the proposed changes to tax laws related to private corporations. Our response to the Minister included the widespread concerns from members as well as seven recommendations aimed at limiting the impact the changes could have on your business. These recommendations are summarized here:
- change the tone used in characterizing small business owners who use the legal tax planning strategies available to them;
- delay the implementation of the proposals until a more comprehensive study can be undertaken regarding their impact on business owners and the revenue that will be generated by them;
- reconsider this policy altogether. Failing that, introduce guidelines to demonstrate permissible structures to compensate family members who can prove they work in a business, or who are post-secondary students;
- grandfather existing investment structures already in place and not apply the new rules to any investment made prior to when the new rules take effect;
- clearly define active investments versus passive investments and consider the accounts below to be classified as active (if the government is concerned that this will be misused, we recommend that a 10-year time limit be established whereby after 10 years the funds, if unused, become passive):
o emergency account
o family planning account
o building or real estate accounts (for business premises)
o expansion account
- consider an indexed amount of no less than $1,000,000 be allowed under the existing rules to ensure that middle-class business owners are not impacted should the government be concerned that too much capital is being shielded in passive investments;
- hold off on this technical and complex proposal to ensure that family members who were once active in the business, are not penalized unfairly by an inability to utilize the same capital gains exemption that is available to other shareholders.
We will continue to keep you apprised of developments as they happen.
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