Federal government has upset small businesses with the last-minute release of new income sprinkling rules for private corporations.
The Canadian Federation of Independent Business (CFIB) expressed disbelief over the move, with president Dan Kelly insisting it will not achieve the tax fairness the government seeks.
The coalition is also demanding Ottawa delays implementation of the rules until January 2019.
“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,” Kelly said.
CFIB did, however, welcome several of the adjustments to the proposed tax changes, including a new commitment to release the draft legislative proposals for income sprinkling in the 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.”
Kelly said the coalition recognizes the attempts to improve the proposal by excluding some family businesses from the new rules, which includes spouses of business owners over the age of 65.
However, he said that 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.
“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,” he said.
He added: “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.”
Kelly also responded to the notes from the Senate Finance Committee report, 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”.
He said the report recommended that the entire package of changes should be replaced with an independent review.
“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 said.