Criticism of Canadian government changes to Income Tax Act continue to mount Criticism of Canadian government changes to Income Tax Act continue to mount

Criticism of Canadian government changes to Income Tax Act continue to mount
26 Jan 2018

Criticism of the federal government’s changes to the Income Tax Act is mounting, with the Canadian Federation of Independent Business (CFIB) becoming the latest organisation to weigh in on the controversy.

According to Global News, one of the more controversial elements of the changes relates to so-called ‘income sprinkling’. This policy permits Canadian-owned private businesses to divide profits among employed family members who may be taxed at a lower rate.

Businesses will now be required to prove to the Canada Revenue Agency (CRA) that the family members being used to ‘sprinkle’ make meaningful contributions to the business. But the CFIB’s vice president of National Affairs Corinne Pohlmann claims that implementing the changes will not be straightforward.

“We do think that these new rules are likely going to add quite a significant amount of red tape to many small business owners who employ family members, or have investors that are family members,” she told the Alberta Morning News.

The CRA itself is also concerned over how to decide which businesses are eligible for income sprinkling or not.

While there has been criticism from current and previous federal court chief justices, the federal government does seem to be responding to some of it. It has said, for example, that the new rules will not apply to income sprinkling for the spouses of business owners over the age of 65, enabling them to carry on under the old guidelines.

According to the federal government, the changes to the Income Tax Act will only affect around 45,000 small businesses across the entire country. But Pohlmann believes other companies could be affected too as they will be required to prove that they are actually employing their relatives in a meaningful way.

According to research by the CFIB, around 70% of Canadian-owned private corporations employ or benefit from investments by family members.

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

Criticism of the federal government’s changes to the Income Tax Act is mounting, with the Canadian Federation of Independent Business (CFIB) becoming the latest organisation to weigh in on the controversy.

According to Global News, one of the more controversial elements of the changes relates to so-called ‘income sprinkling’. This policy permits Canadian-owned private businesses to divide profits among employed family members who may be taxed at a lower rate.

Businesses will now be required to prove to the Canada Revenue Agency (CRA) that the family members being used to ‘sprinkle’ make meaningful contributions to the business. But the CFIB’s vice president of National Affairs Corinne Pohlmann claims that implementing the changes will not be straightforward.

“We do think that these new rules are likely going to add quite a significant amount of red tape to many small business owners who employ family members, or have investors that are family members,” she told the Alberta Morning News.

The CRA itself is also concerned over how to decide which businesses are eligible for income sprinkling or not.

While there has been criticism from current and previous federal court chief justices, the federal government does seem to be responding to some of it. It has said, for example, that the new rules will not apply to income sprinkling for the spouses of business owners over the age of 65, enabling them to carry on under the old guidelines.

According to the federal government, the changes to the Income Tax Act will only affect around 45,000 small businesses across the entire country. But Pohlmann believes other companies could be affected too as they will be required to prove that they are actually employing their relatives in a meaningful way.

According to research by the CFIB, around 70% of Canadian-owned private corporations employ or benefit from investments by family members.

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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