Can someone explain how some small business individuals get away with paying the lower corporate tax on stock and bond investments their personal portfolio? Is it as long as the business is operating they can use all available cash in the company for personal investments like mutual funds or stocks. Can they do this currently once the business ends being an active co. Whose really taking advantage here how are bogus businesses being used to save tax...
Explain how small business, doctors take advantage of low corp. tax rates
- Thread starter happ
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Check out this article:
http://business.financialpost.com/p...rivate-corporation-tax-could-make-it-possible
The liberal government is using scare tactics to try and convince the general public of "loopholes". However, there are no loopholes in the Tax Act. These are fully governed within the Income Tax Act and is merely a mechanism for Liberal government to raise tax revenues without actually raising marginal tax rates.
That's correct. It is all a big scam to raise taxes. They say they are helping the middle class but the income threshold of middle class keeps getting smaller.
The small business groups, doctors included, for the most part did not vote for the Trudeau Liberals in the last election. The wave that brought in " Justin " is apathetic and will not be too sympathetic about this proposed tax reform if they are even aware of it in the first place. Actually it was too good to be true anyway and it is not surprising that it would be eventually attacked. Income sprinkling in a socialist nanny state is curious at best.
Investment income/capital gains in a corporation is not considered active business income and thus does not get the small business rate of 14%. It is taxed at a higher rate of 37%. However, since we are in a self assessing system many will lump in the investment income earned as active business income. They may or may not get away with it particularly if there is a T3 or T5 slip that reports the investment income earned. CRA will reassess accordingly.
The alarming thing the Liberals are planning to do is to a mass review of these small business corps to see who exactly is deriving income from it and determining it's nature. That means that the doctor who is paying their spouse and/or kid(s) a salary in order to split income could see that denied by CRA. This is being done in an attempt to increase taxation revenues without having to raise rates, which are already sky high. These kind of antics I would expect from a left wing party like the NDP. Very anti small business.
The alarming thing the Liberals are planning to do is to a mass review of these small business corps to see who exactly is deriving income from it and determining it's nature. That means that the doctor who is paying their spouse and/or kid(s) a salary in order to split income could see that denied by CRA. This is being done in an attempt to increase taxation revenues without having to raise rates, which are already sky high. These kind of antics I would expect from a left wing party like the NDP. Very anti small business.
Are you serious? You don't see income splitting with people who don't actually work at your company as wrong? I'm 100% for closing that loophole. And the passive income loophole.
However, I'd suggest they use the added revenue from closing them to offer instead a broad tax break...which I doubt they'll do.
They should be able to as passive (investment) income is taxed at a higher rate then active (business) income. The advantage is that they can invest income that was taxed at a lower corporate rate than the personal rate.
Business individuals also pay wage to family members who to divide up the income between spouses -- this is allowable if the spouse is actually working in the business if the spouse is not working in the business then the amount is not deductible for tax purposes as it is not laid out to earn income.
The other thing that they can do is "sprinkle dividends" among adult family members again perfectly legal if the family members have invested the business but not if the shares were gifted. Benefit child is 18 needs money for University parent gifts them shares then instead of parent taking out extra funds they pay a dividend to child who is in a lower tax bracket.
All this gives business individual an advantage over employees who receive a T4
Remember Corporate Tax rates have been lowered very low rates (15% for small business corp) because business leaders made the case that they need lower rates to have more money left over for R&D, Equipment updates, hire employees this would stimulate the economy, I don't think that they delivered on their end.
BTW the practice of income splitting with spouse can bite you in the butt in a big way come divorce time, I have seen it happen.
What so wrong about it?
This has been going on since forever, just like the exemption for married people with a spouse.
Well its actually FRAUD for one. You are claiming someone is an employee when they really are not. And you are claiming you are paying them when you actually are not. The exemption for married people is a deduction for a dependant no? Its an acknowledgement that a couple is a single unit but you cannot split income with a spouse, that was killed. Sprinkling is a form of income splitting, and since it was ended for salaried people, it is also fair to end it for business owners.
Paying a "salary" to a family member or anyone else who does not work in the business has never been a deductible expenditure as the expenditure was not laid out to earn income. The amount is still taxable in the hands of the individual but not deductible by the payer.
Since incoming sprinkling and income splitting was allowed, some individuals have abused it like pig at the trough, licked the plate clean like Mike Duffy at an all you can eat free diner. This excess has not gone with notice as workers who cannot incorporate watch, are jealous and watch there employers seemingly get further ahead. Notice that the nurses unions and organizations have sent letters to Ottawa in support of cutting off the physicians tax breaks under incorporation. This move by the Federal Liberals is a sly but dirty tax grab which will affect those who did not vote Liberal anyway.
You have to love the hypocrisy. Bill Morneau was shown to have a hidden Bank account(s) in Panama when the Panama Papers were released. And he's accusing small businesses of tax evasion !!! Priceless. Hey Bill. Why don't we go back to minting our own money instead of borrowing at interest you Bilderberg Globalist stooge !!!!
Since when has it being "going on since forever" a valid defense? So has drunk driving; we don't just accept it.
Others have already answered, but I'll add my two cents. It's both fraud and tax evasion. You're gaming the system in order to pay a lighter tax burden, which benefits you over honest folk who have to pick up the slack. That's why loopholes are shit. If we close the loopholes, we theoretically could provide a broad tax break to everyone. That said, it's government, so who knows if they'd follow through....
Meanwhile Morneau and Trudeau use other tax loopholes to hide their income. https://globalnews.ca/news/3761484/...eau-left-untouched-by-proposed-new-tax-rules/
That's not an argument against closing the loopholes. Showing that more and more powerful people abuse the tax system is an argument for expanding the bill to close even more loopholes.
But I'll take whatever we can get and I don't care who sponsors the bill as long as those loopholes get closed.
K Douglas;5945646 The alarming thing the Liberals are planning to do is to a mass review of these small business corps to see who exactly is deriving income from it and determining it's nature. That means that the doctor who is paying their spouse and/or kid(s) a salary in order to split income could see that denied by CRA. This is being done in an attempt to increase taxation revenues without having to raise rates said:
