A leading national expert on tax laws has some advice for the federal government as it wraps up the consultation period on its proposed tax reform:
- Fix the transition impacts of the broad changes it is proposing.
- Fix the family succession problem it will create if it makes the changes it is proposing.
- Prove that passive income held within small corporations is actually a problem.
- Treat fairly the spouses of people operating family businesses.
“The communications around this and the evidence provided was very weak,” said Jack Mintz, director of the School of Public Policy at the University of Calgary.
“No wonder the government got in trouble over all this. They didn’t help their case very well.”
The consultation period ended Oct. 2, and by Oct. 3 the government seemed to be in the early stages of trying to “fix” some of the highlighted problems.
Finance Minister Bill Morneau and Prime Minister Justin Trudeau offered pacifying statements about ensuring that small businesspeople will not be unjustly treated and that family handovers to the next generation would be looked after.
However, a senior finance de-partment official told the Senate finance committee Oct. 3 that the department has no existing plan to deal with succession issues and is looking for “inspiration.”
Mintz said the government’s proposals are both too much and too little. The proposed changes could have many unintended consequences, such as discriminating against family transfers versus selling to non-family members and creating a less fair system than the one now in place.
“If I was going to do something on small business, I find this package very disappointing,” said Mintz.
He would prefer to see Canada simplify the overall tax system with one corporate tax rate applied to both big and small businesses and then incentives provided to small businesses to help them grow.
He said small businesses are now taxed at a lower rate but also given an unintentional incentive to stay small rather than grow, which doesn’t make sense.
He’d also like to see spouses of small businesspeople allowed to split income in some way with their partners because that’s how family, law, estate and pension laws are already applied.
As well, the government might just want to drop the “passive income” proposal unless it can demonstrate that it’s actually a problem.